As Peak Hurricane Season Approaches, Floridians Should Review Homeowners Insurance For Costly Coverage Mistakes

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TAMPA, FL, August 6, 2015 — Peak hurricane season runs from mid-August through October, making this a good time to review insurance coverage. And, while saving money is important, shaving off key protections in order to reduce insurance premiums can be costly if things go wrong. according to the Insurance Information Institute (I.I.I.).

Although the 2015 hurricane season is predicted to be below normal, the National Oceanic and Atmospheric Administration (NOAA) cautions that three to six storms may still reach hurricane strength this year. “The best way to avoid living the cliché of being ‘penny wise and pound foolish’ is to know what less-than-full coverage will cost you,” said Lynne McChristian, Florida representative for the I.I.I. “Talk with an insurance professional before the winds kick up to understand the difference between smart shopping and possible costly mistakes.”

Smart shoppers look for ways to money--and there are several smart ways to save money on homeowners insurance. However, there are also some costly mistakes that can backfire if a hurricane hits:

Mistake #1: Going “bare.”             Homeowners without a mortgage are not required to have home insurance—but going without insurance protection means the risk of losing what you’ve invested in what is likely one of your most important assets. For most people, setting aside a pool of money large enough to rebuild a home or replace all their possessions is too much of a financial challenge, leaving them with insufficient funds in the event of a total loss.

Mistake #2: Eliminating windstorm and contents coverage.             Florida has a law allowing an exclusion of windstorm or contents coverage. While a residential property insurance policy typically includes this protection, homeowners may choose to send a handwritten and signed letter to their insurer asking that such coverage be excluded and acknowledging they will pay for any losses. Excluding windstorm and/or contents coverage can save you hundreds of dollars a year on insurance. “But the downside is you will need to pay thousands of dollars—or even hundreds of thousands of dollars—out of your own pocket if a hurricane strikes,” said McChristian.

Mistake #3: Declining Building Ordinance or Law coverage.             Homes age and building codes improve. That often means that there can be a big difference in the structural strength of a newly built home and one that is 10 or more years old. Florida now has among the strongest building codes in the United States, according to a report by the Insurance Institute for Business & Home Safety. This is a good thing, but it does mean that if a home is damaged or destroyed, rebuilding to current building codes will raise the cost of reconstruction. Building Ordinance or Law coverage pays for this additional expense.

Mistake #5: Choosing a high hurricane deductible.             Florida is one of several coastal states with a percentage hurricane deductible based on a home’s insured value. Homeowners have the option to select up to a 10 percent hurricane deductible. High deductibles lower the cost of insurance, but they also mean higher out-of-pocket costs after a storm. For example, a homeowner with a house insured for $200,000 with a 10 percent hurricane deductible would have to contribute $20,000 toward rebuilding costs. Lowering the hurricane deductible to 2 percent would cut that amount to $4,000.

Mistake #4: Insuring for less than the rebuilding cost.             Most insurance companies will allow a homeowner to insure for less than what it costs to rebuild–though never below 80 percent of the home’s replacement cost. Homeowners who choose this option would be responsible for paying both their deductible and the additional cost to cover the gap in their rebuilding coverage.

Indeed, in hurricane-prone areas, it is worth considering a homeowners policy that provides broader coverage, called extended replacement cost coverage. After a major natural disaster, construction professionals may be in short supply and building materials in great demand. This combination increases the cost to rebuild. Extended replacement cost policies will pay an additional 20 percent or more above the policy limits to account for such increases.  

Mistake #6: Forgoing flood insurance.             A standard homeowners insurance policy does not cover flood damage. Because it can rain hard —and for extended periods—even during a regular storm, every Floridian should consider purchasing a separate flood insurance policy from the National Flood Insurance Program (NFIP) or from a private insurance company. Excess flood insurance is also available from private insurance companies if more coverage is needed than the amount available from the NFIP.

RELATED LINKS

Issues Update: Hurricane and Windstorm Deductibles

Facts and Statistics: About the National Flood Insurance Program

Florida Hurricane Fact File

The I.I.I. has a full library of educational videos on its You Tube Channel. Information about I.I.I. mobile apps can be found here.

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