Loan Vs. Insured Amount – How Much Coverage Is Needed?

How Much Coverage Is Needed?

Getting the appropriate insurance coverage can be very confusing for any policyholder. Many potential borrowers wonder what the difference is between their loan costs and their amount of insurance expenses. Although understanding the difference between loan amounts and insured amounts can be complicated, it is crucial for policyholders to understand so that they can have the right protection. If you are wondering how much insurance coverage you may need in San Diego, California, Windfall Insurance Services Inc. can help. Continue reading to learn more about the differences between loan amounts and insurance amounts, and how much coverage you need.

What Is Meant By ‘Loan Amount’ and ‘Insured Amount’?

A “loan amount” is essentially the money that you have borrowed from a lender and promise to pay back. This monetary amount does not always just include the sum you received, however. It can also include additional costs such as loan fees, closing costs, and other administrative fees. If an accident or disaster happens, and your property, (whether it be a car, a home, etc.), needs to be repaired or replaced, the total cost of replacing your insured property is called the replacement cost. Since the replacement costs may include the price of construction and repair time, the replacement cost isn’t always the same price as the property’s market value.

Your loan amount can be very different from your insured amount, which is the amount of funds that are paid out by your insurance agency in the event that damages occur. It is important to note that insurance policies can be calculated differently; while some companies might insure replacement costs, others may cover the entire loan amount. When you compare your loan amount to your insured amount, it is important to consider the amounts in terms of money that was paid compared to money that was received in the event of a claim. For instance, if you owe a lender $30,000 for a car, and your auto insurance policy only covers the cash value of the car, which equals $25,000, that leaves a $5,000 difference between your loan amount and insured amount. If you had to file a claim, you would only be able to be reimbursed the cash value amount, and would have to pay the rest out of pocket, which would be a substantial expense. The same situation could occur with any high-priced item, such as a home. In order to be fully protected in this situation, you would need gap insurance to help pay the difference, in addition to your regular insurance policy.

Getting The Right Insurance Coverage

Whatever your unique situation may be in San Diego, California, you may need to obtain insurance that covers your entire loan amount to ensure you are fully repaid when filing a claim. Contact Windfall Insurance Services Inc. today to determine the best insurance coverage for your situation.