my neigbhoor has a $65,000 mortgage, but she is insured for $116,675
with other misc fees premium comes to $2,351.00 for here small two bedroom
house.
The insurance company said they insurance the house by the replacement value.
by law.

Does the mortgage company care that much about the replacement value
or are they just interested in the amount they have invested.

Normally the mortgage company is going to be concerned with covering the loan. So if the replacement value is $116K, as long as the bank gets their $60K back, the rest is up to the homeowner.

Your neighbor should be concerned with the replacement value because once the bank gets their $60K, then your friend is at square one. Not a good place to be if the home is destroyed.

Also, many companies offer additional coverages when the property is covered at full replacement value. Many offer what is called "rebuild" value. So if the home is destroyed but the cost to rebuild the home exceeds the $116K (which we are considering "full" replacement value in this particular case) then the insurance company may allow an additional percentage of that value as a cushion. Consider it as a 'perk' of sorts.

I never recommend that someone not insure their home at full replacement value. You may pay a premium for 40 years and never have a claim. But the flipside is that you may choose to underinsure hoping to save money but in the event of a claim, you're up a creek.

Are you sure about those numbers? A premium of $2,351 seems extremely high for $116K policy.

Are you sure about those numbers? A premium of $2,351 seems extremely high for $116K policy.

I wondered about that as well but there are a lot of unknowns since he says he's asking for his neighbor. Here are some things that will affect the premium.


location (proximity to coastline)
prior claim history (personal)
claim history for region/area of town
construction of building
credit history
deductible
additional endorsements on the policy
age of home


OP, I would suggest that your neighbor sit down with his/her insurance agent and review the policy to know exactly what they're paying for and get a breakdown of the premium. It may be time to shop around for a new carrier...