Who decides on the type of insurance, the mortgage company or me?
You do. The mortgage company collects a set amount from you each month in order to protect their investment. This money is put in escrow and covers your insurance and taxes. However, the policy is still yours and you might select the insurance you feel offers the best coverage at the best rates.
Can a Bank or Mortgage Company Tell me that I need to carry a certain amount of insurance, even if it exceeds the replacement cost of my home?
No. This is one of the most common questions here in the seacoast sections of Maine and New Hampshire due to the extreme values in waterfront land. In Maine, Title 33 prohibits financial institutions from making the homeowner carry more insurance than what the property would cost to rebuild as is. It is flat out illegal. Where we see problems with this most often is in waterfront homes where the land may be worth $1,000,000 but the home would only cost $250,000 to rebuild. Often the buyer would have a loan of about $750,000 and the mortgage company would tell them that they had to have insurance for the amount of the loan. Here is Title 33 word for word…”No person or financial institution making a residential mortgage loan for one to 4 residential units may, as a condition of the mortgage or as a term of the mortgage deed, require that the mortgagor carry property insurance on the property which is the subject of the mortgage in excess of the replacement cost of any buildings or appurtenances subject to the mortgage.”