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#1791893 - 03/06/13 04:35 PM
Multiple Buildings and Allocation of Coverage
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Power Poster
Joined: Jan 2004
Posts: 2,795
Guess
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How are other banks approaching this issue?:
You have a residential loan with multiple insurable structures in the flood zone. You have met the regulatory requirement for coverage because the main structure is valued over $250,000 and you loan amount is over $250,000. Yet you still have to have separate policies on guest houses, sheds, workshops etc...do you require those structures be covered at 100% RCV even though the regulation is satisfied? Or do they have to have any coverage at all UNDER THE REGULATION? I think not, so any coverage beyond $250,000 on the main structure would be a function of internal policy and/or safety & soundness consideration, correct?
Last edited by YosemiteSamIAm; 03/06/13 04:40 PM.
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#1792208 - 03/07/13 03:13 AM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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You have met the regulatory requirement for coverage because the main structure is valued over $250,000 and you loan amount is over $250,000.
How is that possible? If you loan amount is over $250K, you have not met the requirements. Each structure must be insured. The total insurance value must be up to the maximum available insurance amounts or your loan value.
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#1793799 - 03/12/13 05:20 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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If loan amount & RCV is over $250,000, the lesser of is the max of $250,000...so again I ask, if you have met that lesser of amount of $250,000, but you have additional structures as collateral, what amount would you require the additional structures to have? And please, don't answer the question with another question.
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#1793806 - 03/12/13 05:30 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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I asked the question because what you said didn't make any sense to me. You get what you pay for on this site.
1. You take the loan amount
2. You take the total RCV or ACV of all the structures depending on the type of structures
3. You take the maximum insurance available - you take each building times the maximum insurance available for that type of structure and add those together.
Your insurance requirement is the lesser of 1, 2, or 3.
How that insurance is allocated among the multiple buildings does not matter from a regulatory standpoint as long as each building is insured for some amount.
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#1793809 - 03/12/13 05:34 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Joined: May 2002
Posts: 6,259
NW IL
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This has never applied to us - insuring all structures. Are all structures in the flood zone? Most of the time, for us, only a portion of one structure is.
So here are the limits: Coverage Type: Coverage Limit One to four-family structure: $250,000 One to four-family home contents: $100,000 Other residential structures: $250,000 Other residential contents: $100,000 Business structure: $500,000 Business contents: $500,000 Renter contents: $100,000
Is this limit "per structure" as Randy seems to indicate? I'd never had to think of that.
We all know that coverage is equal to the lesser of (1) the outstanding principal balance of the loan, (2) the maximum amount available under the NFIP, or (3) the total insurable value of the property.
You get a separate policy per building? I would think, YSIA, if you do anything but 100% RCV even though the regulation is satisfied, you will open yourself up for a safety and soundness issue.
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#1793831 - 03/12/13 05:48 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Guess
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Thank you QCL, you understand my question. I can't get them to consider safety and soundness here, LOL, they always say that is a separate issue.
Yes, all structures in the zone that are not covered by the main structure (only a detached garage can be covered by the main policy and then only to 10% the coverage on the main structure) must have a separate flood policy. If you have $250,000 in coverage on the main structure and your loan amount is greater than that and your RCV is greater than that, then all the regulation requires you to have for coverage is $250,000...yet you have additional structures securing the same loan in the flood plain. If you have met the minimum, DO you have to require coverage on the other structures and, if so, how would you assign value, since you have already met the minimum.
I do not necessarily agree that the regulation states EACH structure has it's own $250,000 max limit...where do we see that?
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#1793839 - 03/12/13 05:57 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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Outside of the appurtenant structure coverage for a detached garage (assuming that it is used for that purpose) all structures must be covered by insurance. Each structure is covered by a separate policy and therefor each structure can be insured up to the maximum insurance available for that structure type.
Why don't you give us some numbers like the loan amount, number and types of buildings, ACV or RCV of the structures - that is usually a lot easier to discuss than in abstract.
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#1793852 - 03/12/13 06:14 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Power Poster
Joined: May 2002
Posts: 6,259
NW IL
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I do not necessarily agree that the regulation states EACH structure has it's own $250,000 max limit...where do we see that?
Randy answers that. Each structure needs it's own policy. I found that in the http://www.fema.gov/library/file;jsessionid=78C290B56BD4552FF803998D7626FE5A.WorkerPublic2?type=publishedFile&file=f084_atq_11aug11.pdf&fileid=f5c93dc0-c9cd-11e0-b431-001cc4568fb6 (copy and paste the link)
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#1794118 - 03/13/13 02:39 PM
Re: Multiple Buildings and Allocation of Coverage
rlcarey
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Power Poster
Joined: Jul 2002
Posts: 6,726
the sandy shore
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Outside of the appurtenant structure coverage for a detached garage (assuming that it is used for that purpose) all structures must be covered by insurance. Each structure is covered by a separate policy and therefor each structure can be insured up to the maximum insurance available for that structure type. Yup, Randy's absolutely right - each structure within the flood zone needs to have its own insurance policy. Further complicating matters is how you've got the security established - if it's building + contents, the policy needs to match. (Conversely, if the security is just the building, all you'd need is the building coverage.)
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#1794131 - 03/13/13 03:06 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Junior Member
Joined: Jan 2013
Posts: 47
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#1794137 - 03/13/13 03:16 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Gold Star
Joined: Oct 2003
Posts: 474
Texas, USA
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Perfect answer, needHELP!!!! Exactly the answer I was looking for this morning on one of our loans.
Thanks again BOL!!!!
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#1794162 - 03/13/13 03:33 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Guess
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O.K. Randy, main dwelling RCV is 300,000, loan amount 275,000, max limit 250,000, so required minimum is 250,000. Main dwelling policy is 300,000, BUT there is a workshop worth 25,000 per the appraisal cost approach and a pool house worth 35,000 per the appraisal cost approach. So I guess the first question is how the Flood Act defines meeting the "lessor ofs"...does that mean if you have met the lesser of of 250,000 on the dwelling that you are in compliance? If so, why does the Bank have to require insurance on the other structures? If not, how are the other structures treated for valuation purposes? Would the "lessor of" calculation start all over? How could it, since the only variable that will not have already been met is RCV on each structure (remember, loan amount and max available on the dwelling have been met, at least in my mind)? Did the regulation therefore envision that we have to require full RCV on any strutures that have value beyond whatever the lessor of is? Hope this makes sense.
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#1794173 - 03/13/13 03:41 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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Just a question - I know you hate them, but you said the main dwelling policy is $300,000. Is this private insurance because the maximum available is only $250,000. But let's take a look at your situation.
Your loan amount is $275,000. Buildings are worth the following:
Main - $300,000 Shop - $25,000 Pool house - $35,000
If your main dwelling is covered for $250,000, you need an additional $25,000 in flood insurance.
That could be split between the shop and pool house anyway the borrower chooses, however each structure requires a policy. It could be split $12,500 on each structure or $10K/$15K or $5K/$20K, it really doesn't matter to you.
The lesser is your loan amount of $275K
Your buildings have a insurable value of $310K. $250K + $25K + $35K.
Maximum insurance available is $1,250,000. $250K on main and $500K each on the non-residential structures.
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#1794911 - 03/14/13 07:40 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Yes, that would be private insurance.
You said something that honed in on my main question:
"If your main dwelling is covered for $250,000, you need an additional $25,000 in flood insurance."
What are you basing that statement upon? My thinking is that we met the required minimum at $250,000, why should the bank (apart from s & S considerations) require the borrower to have ANY additional insurance period. Yes, I understand that each building must have a separate policy, but why should we sorry about the amount of coverage on those additional policies if the minumum has been met?
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#1794928 - 03/14/13 07:59 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Posts: 47,517
Bloomington, IN
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Based on the figures in Randy's post above the minimum coverage you need to be compliant is $275,000 which is the loan balance.
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#1794956 - 03/14/13 08:23 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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Also, the fact that you have $300,000 coverage on the main house does change the calculation slightly. Since you have your minimum amount of insurance on the main structure (greater than $275,000) all you have to do is ensure that the other two buildings have a flood insurance policy. The coverage amounts can be whatever the borrower chooses. I was basing my previous comments on the maximum insurance available under the NFIP which is what 99.9% of the borrowers use rather than a private insurance policy. Hence the discussion about the $250,000 maximum available on the main house. If you had told us that this was a private flood insurance policy for an amount greater than issued by NFIP it may have been slightly easier
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#1796012 - 03/18/13 09:41 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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There is no "commercial" designation when it comes to flood insurance. All you have is residential and non-residential structures, so yes, they would be eligible to up to $500,000 each.
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#2168121 - 03/14/18 04:44 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Joined: Sep 2014
Posts: 1,294
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We have a commercial loan with 4 non-residential structures (self-storage units) in a flood zone. We are doing a loan to build a 5th structure. All of the structures share the same address. We need to get the lessor of the 3 for each structure that is built now, and then ensure appropriate coverage on the 5th structure once it meets the critera for the insurance purchase requirmenents, correct?
Last edited by bcompliance; 03/14/18 04:46 PM. Reason: clarify
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#2168127 - 03/14/18 05:09 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Galveston, TX
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Correct.
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#2168132 - 03/14/18 05:20 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Thank you Randy.
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#2183131 - 06/26/18 02:16 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Galveston, TX
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I assume you are referring to a private policy, I have never seen a NFIP policy that listed multiple buildings. $100,000 is your number, if the private policy meets your private policy requirements and all three buildings are insured, you are good to go.
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#2183138 - 06/26/18 02:39 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Posts: 83,227
Galveston, TX
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There is no specific guidance that has been issued on private flood policies. Acceptance is left up to the bank.
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#2196800 - 10/30/18 03:50 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Member
Joined: Jan 2010
Posts: 66
undecided
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This is also a flood coverage question regarding a loan with multiple buildings. The loan is secured by three buildings/contents, two of which are in flood hazard area. The loan amount is $10M. The value of the building #1 is $863,000. The value of building #2 is $200,500. Maximum NFIP coverage is $1,000,000. I know that amount of coverage I need is $1,000,000 but am having a difficult time explaining to lender / borrower that $1,000,000 is required, especially when the value of the second building is only $200,500. Am I missing something?
Last edited by HuntFish; 10/30/18 04:25 PM.
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#2196806 - 10/30/18 04:16 PM
Re: Multiple Buildings and Allocation of Coverage
rlcarey
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Joined: Sep 2014
Posts: 1,294
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1. You take the loan amount
2. You take the total RCV or ACV of all the structures depending on the type of structures
3. You take the maximum insurance available - you take each building times the maximum insurance available for that type of structure and add those together.
Your insurance requirement is the lesser of 1, 2, or 3.
How that insurance is allocated among the multiple buildings does not matter from a regulatory standpoint as long as each building is insured for some amount.
This is the requirement. That is how I would explain it to the lender.
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#2196823 - 10/30/18 05:39 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Diamond Poster
Joined: May 2011
Posts: 1,984
Idaho
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So that means you are going to require the borrower buy a private policy for building 1, because you can't require insurance above the insurable value on building 2? That doesn't seem right.
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#2196825 - 10/30/18 05:50 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Joined: Jul 2001
Posts: 83,227
Galveston, TX
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Building #1 - $500,000 = maximum insurance available. Building #2 - $200,500 = insurable value
Total Flood insurance = $700,500
Private insurance over an above those requirements is a bank decision.
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#2238216 - 06/17/20 01:28 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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New Poster
Joined: Jul 2015
Posts: 20
FL
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How much coverage would you require in the following scenario?
Loan amount $250,000 Appraised value - dwelling $300,000 Appraised value - detached structure $50,000 (considered as residential)
Applying the lesser of the 3 would be $250,000 required coverage which would not completely cover the house but would cover the loan amount. Then we have the detached structure to cover.
Thanks.
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#2238217 - 06/17/20 01:35 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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You need a separate policy on both the structures and the two policies have to total $250,000 (loan amount which is the lesser of the three) assuming that when you say appraised value you mean insurable value.
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#2238224 - 06/17/20 02:08 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Power Poster
Joined: Sep 2010
Posts: 2,658
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Depending on what you mean by "considered as residential," you may be able to qualify for the detached structure exemption. If it does qualify (by passing the 4-part test for the exemption), you would only need a policy on the dwelling. If the structure doesn't qualify for the detached structure exemption you would need separate policies on both structures, as Randy pointed out.
What do you mean when you say the detached structure is residential?
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Adam Witmer, CRCM All statements are my opinion, not those of my employer, and should not be taken as legal advice. www.compliancecohort.com
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#2238230 - 06/17/20 02:46 PM
Re: Multiple Buildings and Allocation of Coverage
Adam Witmer
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Joined: Jul 2015
Posts: 20
FL
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Presume the detached structure requires flood coverage.
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#2238232 - 06/17/20 03:12 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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Loan amount $250,000 Appraised value - dwelling $300,000 Appraised value - detached structure $50,000 (considered as residential)
Based on this as Randy stated you need total coverage in the amount of $250,000 since the loan amount is the lesser of the 3 prong test.
Each building has to be insured. How you allocate the coverage is up to you, although you could not insure the detached structure for more than its insurable value.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2238233 - 06/17/20 03:15 PM
Re: Multiple Buildings and Allocation of Coverage
YosemiteSamIAm
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Power Poster
Joined: Sep 2010
Posts: 2,658
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Then as Randy said, you will need two policies (one for each structure) totaling at least the lesser of the three (loan amt, insurable value, and maximum available), which appears to be $250,000. You can allocate the $250,000 pretty much any way you want (though it is good to have some method to your madness), as long as the total of the two policies at least meets the amount required, which appears to be $250,000.
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Adam Witmer, CRCM All statements are my opinion, not those of my employer, and should not be taken as legal advice. www.compliancecohort.com
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