[quote=carlsbadworker]
You are missing my point on “insuring for the lender.” Say if we just bought a $300K house with $60K down payment, if the house is totalled by an earthquake. I am either paying $45K out of the pocket and spend my time to repair the house or paying $60K to buy another $300K house with 20% down again, then stop paying on the original collapsed house. Wasn’t that become the lender’s problem? So basically, I pay $1K year for a possibility saving of $15K (assuming total collapse). I don’t think the risk is that high.
And if the damage is less than $45K (which is more likely, given that it is built after 2000), you just wasted $1K insurance premium.[/quote]
Now I get where you’re going with this. Lets assume that you buy the insurance and w/in a year, there’s an earthquake that total your house. You have an option of paying $46k to rebuild your $300k house, or spend $60k to buy another house. I still think $46k < $60k. However, if you down less than 20%, then it would be better to just walk away. Then in that scenario, you're right, there's no point in buying insurance. Every year that you pay into your mortgage your principle goes down, which give you more incentive to get insurance, right?
Lets say you won't experience an earthquake that total your house for 10 years, you would have paid $10k in premium + $45k to rebuild (assuming cost to rebuild doesn't go up in 10 years). So, if you rebuild, you're still only out $55k. However, if you walk away, you're out $108k you've put into your house ($60k in down payment and $48k in principle) + $60k (20% down on an equivalent house, assuming housing doesn't go up in 10 years).
Besides the scenario where your down payment of a new house is less than to cost of rebuilding your current house + the yearly premium, can you give me a scenario where it would make more sense to not get earthquake insurance? In the scenario you gave in your last post, $60k is still greater than $45k. Also, if I'm not mistaken, you don't have to rebuild to the exact quality. So, lets say you're covered for $300k and your house get totaled. They pay you $255k to rebuild your house. You can rebuild your house up to $255k and not have to spend a single penny out of pocket. Right?
