PRESS

Now's the Time to Shore up Insurance

Find out what your property insurance covers and whether you need more protection.

By HELEN HUNTLEY
Published April 15, 2007

If a hurricane destroyed your home, who would pick up the tab for rebuilding: you or your insurance company?

That's no idle question when you live in Florida. For most of us, the goal is to make sure the insurance company is on the hook for as much of the tab as possible. However, sharply escalating insurance premiums have others going in the opposite direction. They're taking on more risk to cut their premiums, then crossing their fingers and hoping for the best. A new state law will allow us to take bigger risks than ever, whether or not that's a good idea.

The time to find out where you stand is right now, not when you're knee-deep in storm debris. Get out your insurance policy or get your agent on the phone. Once you know what's covered, you can decide whether something needs to be changed.

Your overall insurance limit is the first thing to check, since that could come into play with a destructive storm. Ideally, you want a limit high enough to cover the cost of rebuilding your house on the same site, not including the value of the land. If you have a mortgage on your home, your lender may require you to carry enough insurance to replace your home but cannot require more than that even if your mortgage is for a higher amount.

How do you know how much to buy?

"Most companies today require agents to use a replacement cost estimator," said Donald Cronin, president of United Insurance.

If your limit looks too low, or if you have had the same insurance carrier for three years or longer, ask your agent to update the estimate. You also can get your own at Web sites such as www.accucoverage.com and http://www.insuretovalue.net although if you have an expensive home with many custom features, you might want to pay for a professional appraisal.

Step 2 is to review your policy's limitations and exclusions. Peripheral structures such as sheds, detached garages, pool screens and fences may have limited or no coverage.

Your policy also may limit or exclude coverage for items such as boats, cars, aircraft, cash, guns, silverware, jewelry, furs, antiques, electronics, business equipment and records. You can buy extra coverage or a separate policy to cover excluded items.

The biggest exclusion in homeowners policies is flood damage, which has been a huge issue for homeowners in Louisiana and Mississippi whose homes were damaged or destroyed by Hurricane Katrina. Even if wind drives the waves, homeowners' policies won't cover flood damage.

If you live in a flood hazard zone, your mortgage lender will require flood insurance. If you own your home free and clear or you live outside the hazard zone, flood coverage is optional, but flooding is still a real risk. In low-risk zones, you can buy $100,000 worth of coverage on a building and $40,000 on the contents for $233 a year, so getting protection doesn't have to be costly.

More than 2-million Florida homeowners have flood insurance, accounting for about 39 percent of all policies nationwide. A 30-day waiting period applies.

Something called "law and ordinance" coverage is optional, but without it, your policy won't pay the extra cost of rebuilding to meet current building codes. That can be substantial if your house was built before the 2001 upgrade to the building code took effect.

A better way to save money is to increase your deductible - within reason. For nonhurricane coverage, if your deductible is still at $500, raising it to $1,000 is a good idea. If you own an expensive house, you might want to opt for $2,000 or higher. Your hurricane deductible most likely is 2 percent of the insured value, but you can go much higher under the new state law if your lender gives the okay. In fact, after July 1, you can drop windstorm coverage entirely, though we don't recommend it.

"Once you get to a 15 percent deductible, you're sharing in a large amount of the risk," said Clint Strauch, chief operating officer for Florida Peninsula Insurance Co. As he points out, that's $15,000 on a $100,000 policy. "There are some banks that won't let you have more than a 5 or 10 percent deductible."

After July 1, you'll also be able to take more risk by declining coverage for your home's contents.

The best way to prepare for the risks you are assuming is to maintain an emergency reserve in a bank or credit union account or a money market fund. Savings bonds less than a year old also can function as an emergency fund since they can be cashed at any time.

Another way to save money is to ask about discounts for home improvements that make property less susceptible to storm damage, such as installing hurricane shutters or fortifying garage doors. The state's insurance companies are in the process of increasing those discounts, doubling them in many cases. Even without discounts, making your home more hurricane-worthy is a good idea.

"We're not going to eliminate hurricanes in the state of Florida, but we can do a better job of reducing the losses," said Cronin at United Insurance.

Helen Huntley can be reached at 727 893-8230 or hhuntley@sptimes.com.

Questions for your insurance agent

What's my policy limit?

Your house should be insured for at least 80 percent of its value, not including the land. Personal property typically is insured for about half the home's coverage, but you need more if your possessions are especially valuable. Lower limits typically apply to jewelry, electronics, guns and business equipment unless you opt for extra coverage. There also may be lower liability limits or exclusions for animal bites and injuries related to certain equipment such as trampolines, diving boards, watercraft and off-road vehicles.

Do I have replacement cost coverage? Replacement cost pays for a new roof if yours is blown away. Actual cash value coverage deducts depreciation based on the age of your roof. For replacement coverage to apply, your house generally must be insured for at least 80 percent of its value. Even if your coverage is described as "replacement cost," it may be capped at the policy limits or at "extended" replacement at 20 to 25 percent above those limits.

Even if your house is insured for replacement cost, your personal property may not be. If that's the case, ask the agent how much more it would cost to upgrade your coverage.

Do I have law and ordinance coverage?

This coverage pays when damage repairs require the house to be brought up to current building codes. That can be very expensive, especially for older houses. Even if you have the coverage, you might consider paying extra to increase the amount.

How much will my policy pay for living expenses if my home is uninhabitable?

That's a huge issue after a severe storm, as Katrina survivors found out.

Which disasters are covered?

All policies cover losses from fire, lightning, explosions, riots, smoke, sinkholes, vandalism, theft, volcanoes and aircraft or vehicles crashing into your house. Many cover additional perils such as damages from falling objects, freezing and burst water pipes.

Most policies cover wind damage, but if you live in certain coastal areas, you may have to buy a separate wind damage policy from Citizens Property Insurance Corp. to get coverage. Policies typically exclude damages from flood, war, earthquakes and nuclear accidents. For flood coverage, you must buy separate flood insurance.

What are my deductibles?

A $500 or $1,000 deductible typically applies to claims other than those related to hurricanes. When the National Hurricane Center declares a hurricane watch or warning in Florida, the deductible for windstorm claims increases to 2 percent of the insured value for most policies in affected areas. A home-owner can choose a higher deductible.