Here's how it works.
Most states [I'm assuming California does, too] have what's called a Valued Policy Law. Means that in case the house burns to the ground, becomes what is called a 'total loss,' the insurer has to pay the amount of the valuation without offset or deduction for any reason.
So, you value your 1200 sq. ft. hovel, er, home in El Monte at $800,000, and pay premium for that amount, the insurer has to pay $800,000 if it burns down even if the market now values it at $475K.
A good law. Keeps the insurers from taking excess premium, then telling you the hovel is worth less than what you insured it for due to market or other reasons. An incentive for all involved to reasonably value their homes for insurance purposes.
Of course, the mortgage co. is named on the policy, so whether you are still on the hook for the mortgage depends on how much you owe. In this environment, however, I suspect the mortgagees are praying for more Santa Anas and no rain. |
