In addition to the obvious need to protect your investment, the ability to get homeowner’s insurance is of utmost importance when getting a mortgage on your property. No mortgage company will loan you money on a home in a retirement community without you first having insurance on the property. In some instances your mortgage lender can even foreclose on the property if you fail to carry insurance. While no one can predict what the future will bring, I have done my best to compile for you the facts and resources, as they now stand, to help you navigate the homeowner’s insurance minefield.
Getting Started
Presumably you now have homeowner’s insurance on your current residence, wherever that might be. My first piece of advice is to ask your current insurance agent if their company writes homeowner’s insurance policies in the area you are moving to. If you are with a large national insurer like State Farm, Nationwide, or Allstate, the odds are good that they do write homeowner’s policies in many other areas. (Note that State Famr no longer writes Homeowner’s Insurance policies in Florida) By doing this, you are taking the path of least resistance, and you will probably be able to get pretty decent rates through what are called “multi-line” discounts assuming you have other property such as cars, jewelry and the like already insured through them. You are welcome to shop around and price out other insurers, but from what I’ve seen, if you are comfortable with the company you have now, switching carriers to save a few bucks isn’t worth the hassle.
Ask Around
If the above scenario does not work out for whatever reason, my next step would be to ask any family or friends presently living in areas you are thinking of moving to who they have as their homeowner’s insurance carrier. If they have no useful information, ask a real estate agent or potential new neighbors for a recommendation.
Because of the ever present risk from hurricanes as well as rising re-insurance rates (yes, insurers get insurance to protect themselves against losses on the insurance they issue you), many insurers have recently dropped customers in damage prone coastal areas, stopped writing new policies in those same areas, or stopped writing new policies in coastal states altogether. You are going to have to do some serious legwork, phoning different agencies to see who is doing what at the time when you need insurance. Many have a one policy out, one policy in type of arrangement, where they will place you on a waiting list and when a policyholder does not renew for whatever reason, they can pick you up.
How to Lower your Wind Premiums
In many states there are ways in which you can save significant amounts of money on the windstorm portion of the insurance premiums you pay each year. Most of these have to do with the manner in which your home is constructed.
For instance, just owning a home that is compliant with the current building codes can save you nearly 50 percent, depending on the insurance company. All the more incentive to buy or build a new home. If that home is built of concrete block, you save another few percentage points. Also, since the roof—as you might have guessed– is an important component in standing up to a hurricane, certain roof types make your home eligible for reduced rates. Experts agree that a hip roof, or a roof that is sloped on all four sides, will perform the best under extreme winds, and having a hip roof on your home can save you almost 25 percent. Other savings are available for having certain types of protective shutters installed on the windows of your home.
In order to get these discounts, most insurance companies either ask that you get a certification from the builder or they will send some other independent party to your home to verify that the home does in fact comply with the requirements for the discounts.
Types of Coverage
When shopping for homeowner’s insurance, there are various types of coverage available for you to choose from. Perhaps the most important is guaranteed replacement cost coverage.
Guaranteed Replacement Cost Coverage
No matter which insurance company you eventually go with, you need to make sure that all rates that you are being quoted are for what is called guaranteed replacement cost coverage, as opposed to actual cash value coverage. Guaranteed replacement cost coverage means that even if you are insured for, let’s say, $200,000, if your home is destroyed and it costs $250,000 to build at today’s construction costs to be put back into use as it was before, then that’s what the insurance company will pay.
This type of coverage will cost more, as you might imagine, but it provides the policyholder with much more protection. One way to mitigate the rise in your premium is to raise your deductible. When you raise your deductible, or the amount you pay out of pocket to file a claim, your yearly premiums will go down.
Endorsements and Additional Coverage
Your homeowner’s insurance policy may not cover certain items in your home against damage or theft. Always have your agent explain anything you don’t understand and read your policy carefully.
Items like fine art, coin or gun collections, jewelry and furs, or electronic equipment beyond the standard televisions and DVD players, must usually be accounted for and covered under a separate policy or endorsement for an additional premium amount. But if you have any of these items, it might be wise to look into the coverage available to you.
Inventory
Always maintain a current inventory of the items in your home, including pictures or video of your property. This inventory should be kept in a safe place outside of the home like a safe deposit box at a bank. This way, if your home and personal belongings are destroyed, you have evidence of what was damaged to show the insurance adjuster. This step alone can save you several hours, days, or sometimes weeks of hassles and delays in getting your insurance claim processed.
Flood Insurance
There are two facts that most people do not know. First, flooding is the number one natural disaster in the United States; even properties not near water can be susceptible to flooding. Second, losses due to floods are not covered by your homeowner’s insurance policy.
The Federal Emergency Management Association (FEMA) puts out “flood maps” that show which areas tend to be most prone to flooding. I often hear people ask, “is the property in a flood zone?” and usually people describing homes in low-risk areas will say “no, it’s not in a flood zone.” Well, the correct answer is that every property is in a flood zone. It’s just a matter of whether it is in a low, moderate or high-risk flood zone.
Your real estate agent might be able to tell you which flood zone the property you are looking at is in. But it is your insurance agent who will use a Flood Insurance Rate Map or FIRM, to ultimately determine your flood risk. Be aware that federal law requires you to purchase flood insurance if you have a federally backed mortgage and reside in a high-risk area.
Flood Zones Explained
Here is a break-down of the various flood zones in which you may find a property located.
Moderate to Low Risk Areas
(Flood insurance is not required, but recommended)
Zones B, C, and X
These are flood zones with a less than 1% chance of flooding each year.
High Risk Areas
(Flood Insurance is Mandatory)
Zones A, AE, A1-A30, AH, AO
These areas have a 1% chance of annual flooding and a 26% chance of flooding over 30 years.
Zone AR
This is a flood zone with an increased temporary risk due to the construction or restoration of a levee or a dam.
Zone A99
Areas with a 1% chance of annual flooding that will be protected by a levee or dam where construction has reached specified legal requirements.
High Risk – Coastal Areas
(Flood Insurance is Mandatory)
Zone V, VE, V1-V30
Coastal Areas with a 1% or greater chance of flooding annually and subject to the additional hazard of storm waves. Also has a 26% chance of flooding over 30 years.
Undetermined Risk Areas
Zone D
Possible but undetermined flood hazards.
Better Safe than Sorry
Everyone, no matter where they choose to live should carry flood insurance available through the National Flood Insurance Program. It is relatively inexpensive, especially if your home is in a low-risk flood zone. A single-family home is limited to $250,000 coverage for structural damage and $100,000 for contents. I have those amounts of coverage on my home in a low-risk flood zone and my premium is just over $300 per year. For less than a dollar a day, I can sleep easy at night when the rain from the latest tropical system is pouring down. It’s a no-brainer.
For more information on flood zones, flood maps, and flood insurance contact your insurance agent or visit www.floodsmart.gov
Photo credit: slworking2 on flickr
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