Owner's Policy Amount
Each state's rules and regulations must be considered, but the general rules in relation to the amount of an owner's policy are as follows:
An owner's policy must always be written for the amount of the purchase price. In the event no sale is involved, the owner's title policy amount is the present fair market value of the premises in question, including improvements. If the property to be insured is vacant land, and the owner intends to erect improvements thereon in the immediate future, the owner's policy may be written for the value or purchase price of the land and the improvements to be erected thereon; but, the following note must be inserted at the end of Schedule B of the policy:
"Note: It is agreed between the Company and the insured that, in the event of a loss hereunder, the liability of the Company shall be limited to the present value of said land as now improved, but shall automatically increase by the amount expended for improvements placed thereon in good faith, and without actual notice of adverse claim, but in no event shall exceed the amount of this policy, to-wit, $_____ (here insert amount shown in the clause of the policy.)"
Loan Policy Amount
The general rules in relation to the amount of a loan policy are as follows:
A loan policy is written for the original amount of the mortgage, except under the following circumstances:
If the collateral includes personal property (other than the types of household appliances usually included in FHA and VA loans) or other real property, or both, the title to which is not being insured, the policy nevertheless may be written for the face amount of the mortgage, but the following must be inserted at the end of Schedule B of the policy!
EXCEPTION - "Note: The indebtedness secured by the (mortgage) (deed of trust) described in Schedule A hereof is further secured by property other than that described in said Schedule A, the title to such additional property not being insured hereby. It is agreed between the Company and the Insured hereunder that the Company's liability shall be limited to that percentage of the unpaid indebtedness secured by said (mortgage) (deed of trust) at the time of any loss hereunder which is equivalent to the ratio which the value of the property described in said Schedule A bears, at the date hereof, to the value of all collateral for said indebtedness."
If the collateral includes personal property, or other real property, or both, as above set forth, the title to which is not being insured, the policy may be written for an amount less than the amount of the mortgage, if the mortgagee so requests and represents that the amount requested is the fair proportion of the security afforded by the property insured to all of the collateral for the loan, but in that event, the following must be inserted at the end of Schedule B:
"Note: In consideration of the issuance of this policy at the request of the Insured for an amount less than the principal obligation secured by the mortgage referred to in Schedule A, the Insured accepts this policy under the condition that the amount of said policy shall be reduced upon any payment made on said indebtedness by the same proportion that the amount of the policy bears to the amount of the principal obligation actually secured by said mortgage at the date of the recording thereof and stated in said mortgage to be $_____."
Leasehold Policy Amount
Most often the title insurance policy amount on a leasehold is determined after the Company and the proposed insured discuss factors relevant to the specific leasehold.
Leaseholds vary in the length of term, rent and other particulars, including the nature of the property demised, and its particular use by the lessee. Market value criterion for determining the value of the leasehold may not be available. Often, the present value of rents for the term of the lease may be factored into other criteria to produce a formula adequate to determine the title policy amount suitable for the particular leasehold.
Most often, the title policy amount on a leasehold is subject to determination and negotiation between the Company and the proposed insured.