Can I insure my house for more than it’s worth?

It’s possible to overstate the value of your house when insuring it. However, your insurance company will only pay you the actual amount of damage you suffered in a loss. For example, if you insured your house for $400,000 and it was completely destroyed in a fire, you will not automatically receive $400,000 from your insurance company. Instead, if the insurer determines the cost to replace your home is only $350,000, that is the amount you will receive as payment for your claim.

Home insurance is intended to make you whole and return you to where you were prior to the loss. Insurance is not intended to generate a profit. This is what’s known as a “moral hazard,” in which an insured person might have an incentive for loss or damage to property because the insurance payment would create a financial benefit. Insurance companies want to avoid these situations and therefore will not pay you more than your house is worth to replace.


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