Determining the Amount of Required Hazard Insurance The following table describes how to calculate the amount of required hazard insurance coverage:

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1 1.03 Hazard Insurance Requirements HAZARD INSURANCE Basic Insurance Requirements Hazard insurance coverage is required to protect against loss or damage from fire and other hazards covered by the standard extended coverage endorsement. This coverage must include, at a minimum, wind, civil commotion (including riots), smoke, hail and damages caused by aircraft, vehicle or explosion. The coverage must provide for claims to be settled on a replacement cost basis. Insurance policies that limit or exclude from coverage (whole or in part) windstorm, hurricane, hail damages or any other perils that are generally included under the extended coverage endorsement are unacceptable. If the borrower obtains insurance that contains such limitation or exclusions, they will be required to obtain a separate policy or endorsement that provides adequate coverage for the limited or excluded perils. Additional requirements apply to properties with solar panels that are leased from or owned by a third party under a power purchase agreement or other similar arrangement. The borrower s homeowner insurance policy must not exclude coverage for any tort liability the borrower may have under the terms of the contract with the owner of the solar panels (for example, direct damage) and may not exclude coverage for losses to the insured premises by reason of the presence of the solar equipment. Determining the Required Amount of Hazard Coverage SecurityNational Mortgage Company requires coverage equal to the lesser of the following: 100% of the insurable value of improvements, as established by the property insurer; or The unpaid principal balance of the mortgage, as long as that amount equals the minimum amount required to compensate for damage or loss on a replacement cost basis. This amount must be equal to 80% of the insurable value of improvements. Determining the Amount of Required Hazard Insurance The following table describes how to calculate the amount of required hazard insurance coverage: Step Description 1 Compare the insurable value of the improvements as established by the property insurer to the unpaid principal balance of the mortgage loan. 1A If the insurable value of the improvements is less than the unpaid principal balance, the insurable value is the amount of coverage required. 1B If the unpaid principal balance of the mortgage loan is less than the insurable value of the improvements, go to Step 2. 2 Calculate 80% of the insurable value of the improvements. 2A 2B If the result of this calculation is equal to or less than the unpaid principal balance of the mortgage, the unpaid principal balance is the amount of coverage required. If the result of this calculation is greater than the unpaid principal balance of the mortgage, this calculated figure is the amount of coverage required. S N M C P a g e 1 September 30, 2015

2 Category Property A Property B Property C Insurable value $90,000 $100,000 $100,000 Unpaid Balance $95,000 $90,000 $75,000 80% Insurable Value $80,000 $80,000 Required Coverage $90,000 $90,000 $80,000 Calculation Method Step 1A Step 2A Step 2B Guaranteed Replacement and Extended Replacement Endorsements If the declarations page indicates Guaranteed Replacement Cost or 100% Replacement Cost then sufficient coverage has been obtained; these statements ensure coverage of 100% of the insurable value of the improvements. Guaranteed Replacement Cost endorsement (under which the insurer agrees to replace the insurable property regardless of the cost). Replacement Cost Endorsement (under which the insurer agrees to pay up to 100% of the property s insurable replacement cost, but no more). If the insurance policy contains an Extended Replacement Rider, the percentage of increased coverage MUST be clearly reflected on the declarations page. This is typically shown as Extended Replacement Rider 120% of Dwelling Coverage, etc. Maximum Deductible Amounts The maximum allowable deductible is 5% of the face value of the policy. In instances where a separate deductible applies for Wind/Windstorm coverage, the maximum deductible must not exceed 5% of the face value. Second Lien Mortgages When the existing coverage for a property that secures a second lien mortgage does not provide coverage equal to the lesser of 100% of the insurable value of the property improvements or the combined unpaid principal balance of the first and second mortgages (as long as that equals at least 80% of the insurable value of the improvements), SNMC requires the borrower to obtain appropriate endorsements to bring the coverage in line SNMC requirements. A copy of any endorsements should be provided. ADDITIONAL REQUIREMENTS The hazard insurance policy must be issued by a company with a general policy rating of B and a financial class size of III or better. In addition, the company must be licensed to do business in the state where the mortgage property is located. The policy must be written with a 12-month terms, except where mandated by state law. S N M C P a g e 2 September 30, 2015

3 Policies insuring personal property such as cars, boats, etc., are not acceptable. However, riders for coverage of personal items within the dwelling, e.g., furs, jewels, etc. will be accepted. Evidence of insurance can be provided with one of the following documents: Declarations Page Certificate of Coverage Evidence of Property Insurance Insurance Binder NOTE: An insurance quote or completed application for hazard insurance is not acceptable. Only the actual documentation from the insurance provider is considered proof of insurance. The following information should be shown on all evidence of insurance: The insured s name(s) and subject property address (premises). Name and property address must agree with the Note/Security Instrument. Mailing address is the same as property address except on second homes and investment properties; then it should agree with the home address shown on the The effective/inception date and expiration date*: o Purchase Loans: Policy must extend for a minimum of 12 months from the date of closing. o Refinance Loans: Existing policy will be accepted provided: Expiration date of the policy is clearly stated. Sufficient impounds are collected to renew coverage at the due date. Existing coverage extends a minimum of 60 days after closing. If the policy will expire within 60 days, evidence of renewal for one year must be provided. The coverage amount, deductible amount and amount of annual premium. The name of the insurance agent and underwriter and the address and telephone number of the agent. SecurityNational Mortgage Company as the loss payee. The mortgagee clause is: SecurityNational Mortgage Company ISAOA 5300 South 360 West, Suite 150 Murray, UT Policy is properly counter signed. Policy must provide for a 30 day written notice of cancellation, reduction in coverage, or other material change to the policy. *Please note The policy must be in effect on, or prior to, the date the loan funds are disbursed. Evidence of premium payment can be provided with one of the following documents: Paid receipt for premium amount reflected on the hazard application, binder, or policy; OR HUD-1 Settlement Statement indicating payment of the premium amount reflected on the policy. S N M C P a g e 3 September 30, 2015

4 HAZARD INSURANCE Condominiums, PUD, and Co-op Condominium Requirements A master policy or blanket policy, must be obtained by the Owner s Associations and the premiums are paid as a common expense. The policy must cover all of the general and limited common elements that are normally included in coverage. These include, but are not limited to fixtures, building service equipment and common personal property and supplies belonging to the Owner s Association. The master policy must sufficiently cover the interior of the condominium including any additions, improvements or betterments to its original condition in the event of a loss. If this type of coverage is not included in the Master Policy, then the borrower must obtain an HO-6 or walls in policy. For condominium projects containing more than 20 units, Fidelity Bond Coverage is required. Co-Op Project Requirements The co-op must maintain a property insurance policy and the premiums are paid as a common expense. The policy must cover the entire project, including the individual units. PUD Requirements The homeowner s association must maintain a property insurance policy and premiums must be paid as a common expense. The policy must cover all of the common elements except for those that are normally excluded from coverage, such as land, foundations, excavations, etc. Fixtures and building service equipment that are considered part of the common elements, as well as common personal property and supplies, should be covered. Individual insurance policies are required for each unit within a PUD project. If the project s legal documents allow for blanket insurance policies to cover both the individual units and the common elements, SNMC will accept the blanket policies in satisfaction of its insurance requirements for the units. If the blanket policy is provided to cover an individual unit in a PUD project, then the homeowner s association must also sufficiently cover the interior of the subject including any additions, improvements and betterment to its original condition in the event of a loss. If this type of coverage is not included in blanket policy, then the borrower must obtain an HO-6 or walls in policy. Liability Insurance SecurityNational Mortgage Company s project liability insurance requirements for PUD, condo and coop projects are as follows: SNMC must verify liability insurance coverage as part of its review of a project. However, SNMC does not need to verify liability insurance coverage for Type E PUD projects or PUD and condo projects processed under the Limited Project Review Procedures. The homeowner s association must maintain a commercial general liability insurance policy for the entire project, including all common areas and elements, public ways, and any other areas that are under its supervision. The insurance must also cover commercial spaces that are owned by the homeowner s association, even if they are leased to others. The commercial general liability insurance policy must provide coverage for bodily injury and property damage that result from the operation, maintenance, or use of the project s common areas and elements. S N M C P a g e 4 September 30, 2015

5 The amount of coverage must be at least $1 million ($1,000,000) for bodily injury and property damage for any single occurrence. For co-op project that consist of elevator buildings, the minimum coverage is $3 million ($3,000,000). Higher amounts of coverage may be required if similar amounts are usually required by mortgage investors in other projects in the area. If the policy does not include severability of interest in its terms, SNMC requires a specific endorsement to preclude the insurer s denial of a unit owner s claim because of negligent acts of the homeowner s association or of other unit owners. The policy should provide for at least ten day s written notice to the homeowner s association (or co-op corporation) before the insurer can cancel or substantially modify it. For condo and co-op projects, similar notice also must be given to each holder of a first mortgage or share loan on an individual unit in the project. Determining the Required Amount of Hazard Coverage- Condominiums, PUD, and Co-Op The master policy must cover 100% of the insurable replacement cost of the project improvements, including the individual units within a co-op or condo project. An insurance policy that includes either of the following ensures sufficient insurable replacement cost coverage: Guaranteed Replacement Cost endorsement (under which the insurer agrees to replace the insurable property regardless of the cost). Replacement Cost Endorsement (under which the insurer agrees to pay up to 100% of the property s insurable replacement cost, but no more). In both cases, an Agreed Amount Endorsement (which waives the requirement for coinsurance) is required. Maximum Deductible Amounts Condominiums, PUD, and Co-Op The maximum allowable deductible is 5% of the face value of the policy. HO-6 Insurance Coverage If the master policy does not provide sufficient coverage of the interior of the project units, an HO-6 policy for the individual unit will be required. The requirements for an HO-6 policy are as follows: Coverage amount must be sufficient to repair the unit to its original condition, including any additions, improvements and betterments, prior to a loss claim event. This amount is determined by the insurer. Additional Requirements The following information should be shown on all evidence of insurance: The insured s name(s) and subject property address (premises). Name and property address must agree with the Note/Security Instrument. Mailing address is the same as property address except on second homes and investment properties; then it should agree with the home address shown on the The effective/inception date and expiration date*: Purchase Loans: Policy must extend for a minimum of 12 months from the date of closing. Refinance Loans: Existing policy will be accepted provided: Expiration date of the policy is clearly stated. Sufficient impounds are collected to renew coverage at the due date. Existing coverage extends a minimum of 60 days after closing. If the policy will expire within 60 days, evidence of renewal for one year must be provided. The coverage amount, deductible amount and amount of annual premium. S N M C P a g e 5 September 30, 2015

6 The name of the insurance agent and underwriter and the address and telephone number of the agent. SecurityNational Mortgage Company as the loss payee. The mortgagee clause is: SecurityNational Mortgage Company ISAOA 5300 South 360 West, Suite 150 Murray, UT Policy is properly counter signed. Policy must provide for a 30 day written notice of cancellation, reduction in coverage, or other material change to the policy. *Please note The policy must be in effect on, or prior to, the date the loan funds are disbursed. S N M C P a g e 6 September 30, 2015