Three Factors Homeowners Must Consider When Updating their insurance for hurricane season
(Note: This Guest Blog is by Ruck DeMinico, Knowledge Manager at Merlin Law Group).
My wife and I were reviewing our homeowner’s policy this weekend, and she was unaware of a few things that all homeowners must know. I am sure there are many more people in her situation. While this blog may be elementary to those who work in insurance, on the off chance that a novice reads this blog, I would like to mention three of the most important things every homeowner should know when updating their insurance for the hurricane season.
First, flood insurance is absolutely essential. Most property insurance policies specifically exclude coverage for floods and also contain an anticoncurrent causation clause, which prohibits recovery when a covered peril and a flood combine to cause a loss. For example, hurricane winds may devastate the structure of a home and then a storm surge floods it. Because the covered windstorm combined with the not-covered flood to cause the loss, the insurer will not cover it. In the litigation following Hurricane Katrina, courts routinely enforced anticoncurrent causation clauses, leaving those without flood insurance devastated, with no means of recovery.
Flood coverage is available through the National Flood Insurance Program, and can be purchased through FEMA or authorized private carriers. The premiums are relatively inexpensive and recovery is limited to $250,000. In many hurricane situations however, it could be the only recovery a homeowner can get.
Second, estimated replacement value rarely equals the actual costs of repair. A homeowner may have determined the replacement cost of his home based on the purchase price or current market value. However, after a loss, the home is to be repaired, not simply replaced, and the cost of repairing the structure can far exceed the estimated replacement costs. Debris removal, specialized work to dry out walls, and new building codes can push the repair costs well over the replacement value limit. Additional factors such as temporarily high prices in the wake of a catastrophe can also significantly increase the repair costs.
To ensure that the replacement value of a property is accurate, a homeowner could ask an expert, such as a contractor, who is knowledgeable about the current costs of construction, including current costs of materials and code requirements. The cost of recently remodeled houses in the same neighborhood could also provide a basis for a more accurate estimate of replacement costs.
Third, Additional Living Expense Coverage, which pays for temporary housing when a covered event renders the covered home uninhabitable, could make the difference for a family after a loss. Many families could not afford their mortgage, car payments, and other monthly bills if they had the added expense of rent while their home is repaired after a storm.
Again, this blog may be unexciting for daily readers or those who work in insurance, but if it helps one homeowner, it was certainly worth it.
Look for tomorrow’s blog; Chip is back from Italy.
Ruck, That's excellent information to provide the homeowner. As a public adjuster and a Licensed Property and Casualty agent in Texas, I would also like to add that many homeowners should purchase the replacement cost coverage if available to them. Many do not realize that their policies are "Actual Cash Value" and not "Replacement Cost" until they have a claim. This could mean the difference to being able to "afford to recover" after a catastrophic event as the payment after the depreciation and deductible will be considerably less, meaning the homeowner will have to pay much more out of pocket.
For those not familiar with the terms:
ACV or Actual Cash Value Current is the cost of replacing an asset (or a damaged or destroyed property) with an identical or comparable asset, less accumulated depreciation and obsolescence.
Replacement Cost is the Current cost of replacing an existing asset or property with the same quality of construction and operational utility, without taking depreciation into account.
This is probably one of the biggest and most costly surprises homeowners unfamiliar with insurance terms learn when filing a claim.
I would add Ordinance & Law coverage is also essential. Many carriers will only award payment for complete roof replacement by allocating some (or a major portion) of the award under O&L.
Victor and Gary,
You make very valid and important points. Replacement Cost Coverage and Law and Ordinance Coverage-sometimes called Code Upgrade Coverage-are essential.
Thanks for adding those valuable comments.
I just received my bill for homeowner insurance, and it increased 13% most of which seems to be due to a 10% increase in dwelling, separate structure, personal property and loss of use coverage versus last year.
Is this in line or are these people trying to boost their premiums?
In addition, If something should befall the house I will be held to a 1% deductible based on inflated replacement costs. Its like I'd be getting it at both ends, so to speak.
I am calling my agent next week.
Any advice?
Kelly,
The main thing to discuss with your agent is whether other insurers will offer the same coverage at a better price.
Do not reduce your replacement cost limits unless you are certain it will cost you less to rebuild your house--don't be foolish and read my Post about Co-insurance Penalties before you do anything about your policy limits.
Finally, you usually get what you pay for. You should have a line of credit for that deductible or money saved in the bank.
Everybody is in a different boat regarding the cost of insurance.
Get the best agent you can. Ask questions.
Agents are important--very important.
Buy as much as you can afford. Toughen your structure. Shop, but only change if you get the same or better coverage at a better price. Cheaper insurance may mean you have less coverage.
Nise site,