I am reviewing our institution's home equity loans and have come accros situations where I think the amount of hazard insurance coverage on the "dwelling" is not enough in comparison to our institutions second position (home equity loan) and the first postion held by another institution. In some cases the hazard insurance amount on the dwelling is only half of the appraisal amount. In other cases, the insurance amount on the dwelling is less than both the first and second positions (80% LTV). The insitution does not use "notice of required insurance" document to be signed by the borrowers. Is there any general rule of thumb as to the amount of insurance coverage for the dwelling in relation to the appraised amount and the loans against the property?

Thank you.

The amount of insurance should cover the liens on the dwelling. Also, those involved with liens should be listed as a lienholder on the policy. I am not sure how much you can push the issue without giving a notice to the borrower of the amount of insurance and deductible the bank requires.

I would look at the amount of the liens and not the appraised amount of the property in determining whether there is adequate insurance on the property.

However, you can run into situations where the value of the dwelling will be less than the amount of your lien due to the value of the land. In such cases, you want replacement coverage on the insurance so that the amount of insurance will cover your lien.