Your homeowners policy must cover 100% of your home's replacement costs, i.e., it must cover the total cost of a potential rebuild in the event of a disaster. If you have full coverage, the insurance company's estimate will exceed the lender's minimum requirements in most cases. To get a more accurate estimate, you can get a rebuild appraisal of the home by consulting local contractors, construction companies, or roofers.
In some cases, the lender may only require a coverage amount that equals the unpaid coverage balance. In addition to minimum coverage requirements and certain hazards, mortgage lenders may also require that the dwelling coverage policy covers certain hazards such as fire and lightning, wind and hail damage, theft and vandalism, falling objects, snow, frozen pipes, smoke damage, explosions, etc. If your policy does not cover some of these events, the mortgage lender may require that you get a separate policy to cover the coverage gap. There are certain terms that may be added to the policy.
For example:
1.The mortgage lender will require that they are named as a loss payee alongside whoever else is named on the homeowners policy. This means if you file a claim, the settlement check will be sent to you as well as the mortgage lender.
2.The lender may require that the insurer includes a clause in the policy stating that the policy cannot be canceled without a 30-day notice to the lender.
3.The insurer may require a deductible amount to ensure you do not cover too much out-of-pocket in the case of a loss.
In some cases, the lender may require other coverage to complement the homeowners policy. The most common type is flood insurance, but the insurer may require other types, such as windstorm insurance.