With the homeowners insurance marketplace constantly evolving in Florida, consumers can easily be confused when analyzing their options. The purpose of this article is to help answer the five most common questions we receive from customers trying to figure out the right way to insure what is commonly their most valuable asset.
WHAT DOES HOMEOWNERS INSURANCE PROTECT AGAINST?
Broadly speaking, homeowners insurance is meant to protect against sudden and accidental damage to your home and its contents, as well as provide liability coverage for the homeowner and immediate family members. Since it is insurance, there are limitations, of course. Damage due to a flood, for example, is not a peril that is included in a homeowners policy and is traditionally purchased separately through the National Flood Insurance Program. Other exclusions include normal wear and tear, intentional acts, war and earthquakes.
HOW MUCH DOES HOMEOWNERS INSURANCE COST?
Every carrier has a different rate determination formula, but the main factors include a home’s age, location relative to the fire department and fire hydrants, type of construction, replacement cost value, claims history and condition of the home. The last item can be extremely significant when looking at older homes; consumers can exert a modicum of control by maintaining an alarm system, complying with wind mitigation recommendations, updating the roof, HVAC, electrical and plumbing systems and by electing higher deductibles.
WHAT IS THE DIFFERENCE BETWEEN REPLACEMENT VALUE AND MARKET VALUE?
A homeowners policy is written based on insuring the home for its replacement cost so that, in the event of a total loss, there is sufficient coverage to rebuild the home. Except in the case of new construction, when the builder can provide an accurate cost to rebuild, replacement cost is typically determined by inputting the home’s particular characteristics (square footage, construction type, zip code) into an insurer’s replacement cost estimator software. It is important to keep in mind that while the market value of a home is important to its owner when it comes time to sell or refinance, it is largely irrelevant when it comes to properly insuring a home to value.
WHAT’S THE DEAL WITH SINKHOLES?
Traditional sinkhole coverage began disappearing about three years ago. Now, most carriers writing new policies are offering “catastrophic ground collapse” coverage instead. The good news is that both policy forms cover sinkholes. The bad news with catastrophic ground collapse is that you cannot make a claim until you are being told by a building official to evacuate your home. A few carriers still offer traditional sinkhole coverage in limited zip codes, but by and large, that market is drying up quickly.
WHO ARE THESE INSURANCE COMPANIES?
After the multiple hurricanes of 2006, the state government did a lousy job of retaining the traditional national carriers that you’ve seen on TV for decades. As a result, the homeowners insurance marketplace is largely underwritten by companies that few would have heard of 15 years ago. We urge our customers that this is a true “buyer beware” situation, as not all carriers are created equal in terms of their financial reserves. Rather than shopping by price alone, we urge you to ask questions about the carrier’s history, premium surplus and claims staffing capabilities. Hopefully we never see another hurricane in Florida again, but should the wind blow, you want to feel secure and know that your carrier is prepared.
Brian Scarborough is a Principal at Scarborough Insurance, an independent agency that sells all lines of insurance and has been serving the community since 1961. Visit scarins.com for more information.