Florida Homeowner's Insurance - What Homeowners Need to Know

Florida Homeowners Insurance:
What Homeowners Need to Know

Purchasing Florida homeowners insurance is more than just a requirement from your mortgage lender. It's a contract that may protect one of your largest financial investments. When purchasing your insurance policy you must take into consideration your area of the country and perils that may affect your home.

Hurricane prone areas like Florida make it especially critical for homeowners to secure proper limits and specialty coverages. Here are a few things Florida homeowners should keep in mind when buying homeowners insurance:

Adequate limits: Most homeowners are aware of their home's value when they first purchase it, however, as time goes by, the value changes. Make sure your insurance policy limit change accordingly.

Change in building codes, construction costs, and other such factors may modify the value of your house. Putting on an addition or making major upgrades to the home will increase its value. You want to make sure that you adequately insure these modifications. The last thing you want to face is a total loss only to find out that your house is still valued at its purchase price several years ago, when it actually your home has increased some 50% in value.
The cost to increase your policy limit to the true value of your home is minimal in comparison to the amount you may lose in the event of a total loss. Discuss the rates with your agent. Certain upgrades may qualify your house for rate discounts.
Policy Valuation: When determining the policy limit, the type of valuation used is important. There are two most commonly used valuations:
- Replacement Cost: With this form of valuation, the insurance company will pay the amount it costs to repair or replace the damaged property subject to the policy limits, terms conditions and deductibles. They will pay for repair using similar quality materials as the original pre-loss home construction.
- Actual Cash Value (ACV): This form of valuation deducts depreciation, wear and tear and other factors from the value of your home.
Premiums generated with replacement cost valuation are higher, but definitely worth the additional cost. Remember, the purpose of insurance is more than satisfying a mortgage requirement. It is to restore your property to pre-loss condition. ACV on the other hand takes the property price and then depreciates the age, wear and tear and other factors, thus reducing the amount an insurance company will pay. Premiums for ACV are cheaper, but the savings is not worth it at the time of a loss.
Extended Replacement Cost Coverage: After Florida homeowners face a major catastrophe like a hurricane, building materials are in high demand and become scarce. Similarly construction workers are at a premium due to the high demand, thus driving the cost of repairing/rebuilding your home up. Extended Replacement Cost Coverage takes this into consideration and pays above and beyond the policy limits for such situations. Depending on the insurance company, policies may pay as much as 20% above policy limits. It makes it worthwhile endorsing your policy accordingly.
Know your hurricane deductible: Approximately 70 % of Florida homeowner insurance policies have a 2% hurricane deductible. That means 2% of your policy limit will be deducted in the event of a hurricane loss (i.e. if your policy limit is $200,000, you will be responsible for the first $4,000 of a hurricane loss).
In return for this hefty deductible, policy owners are awarded a 10 to 20% premium discount on the wind premium on their policy. This law has been in effect in the state of Florida for about 10 years. It is also common in approximately 17 other hurricane-affected states.
Knowing beforehand that your deductible is 2% will enable you to set money aside on a regular basis to be used in the event of a loss. Imagine your shock if after a loss you become aware of the 2% deductible. Knowledge is key.
Flood insurance: Did you know that a standard homeowners insurance policy does not cover flood damage, which includes storm surge from a hurricane? Don't despair; this coverage can be purchased separately from the Federal Government through the National Flood Insurance Program (www.fema.gov).
If you are confused, contact your insurance agent who should be able to provide you with the proper agency to contact. Be aware, however, that the maximum policy limit at the time of this writing is $500,000.

When buying Florida homeowners insurance, being informed is key. Make sure you do your homework. Here are a few sites that offer Florida specific information:

Florida Insurance Council
Florida Office of Insurance Regulation
My Safe Florida Home