Buying a home is exciting but there are a few details that we don’t think about until the day to sign the loan approaches, such as purchasing homeowner’s insurance. When people first come to us looking to purchase homeowner’s insurance we’ve noticed there are a few misconceptions about Florida homeowner’s insurance, so we decided to put those misconceptions to bed.
- Flood Insurance Is For High Risk Areas Only
This misconception, typically brought to us by first time homebuyers or first time buyers in Florida, comes from a lack of knowledge about flooding and insurance coverage of flooding. Damage caused by flooding is not covered under homeowner’s insurance but rather through a separate policy. Flooding is the number one natural disaster in the United States and even homes deemed a “low or moderate risk” make up a large portion of insurance claims – 25-30% in fact.
The Federal Emergency Management Association (FEMA) has a “flood map” on their website that allows homebuyers and agents alike to check the risk level a home is for a flood. Homes are classified as low, moderate, or high risk for flooding. Federal law only requires that those living in a high risk area to purchase flooding insurance while those in low or moderate areas can choose whether or not they want the coverage for themselves.
This leads us to the next misconception for those looking at a home with a low to moderate risk for flooding.
- Flood Insurance Is Too Expensive
Flood insurance coverage maxes out at $250,000 for structural damage and $100,000 for personal property. Flood insurance for homes in a low or moderate risk area is actually relatively cheap, sometimes only a few hundred dollars for the year. But for the peace of mind it can bring is priceless.
Florida is prone to tropical storms and hurricanes, it’s a part of life in the Sunshine State. With these storms comes rain – and lots of it. Even homes in low or moderate risk areas can take on more water than usual during these storms. A quarter of all flood insurance claims come from homes in low or moderate risk areas, and that’s just from those who elected flood insurance coverage. Damage from flooding is not covered under your homeowner’s insurance policy, so for a few hundred dollars a year, give yourself the peace of mind that your home is protected if and when a storm hits.
- The Price Of The Home Determines The Monthly Homeowner’s Insurance Premium
Like all other types of insurance, there are several factors that are considered when calculating the premium of your homeowner’s insurance. The value of your home is just one of the many factors. Other things that are considered are
- The year the home was built
- If the home was built prior to a certain year, was it updated to meet new building codes and requirements
- The materials used to build the home
- The age of the roof
- How you plan to use the home (personal or business)
- How often you plan to be in the home (permanent residence or vacation home)
- Where the home is located
- Homebuyers Should Get As Much Coverage As They Can Afford
It is understandable to want to protect your new investment from anything happening to it but there are ways to do that without over paying on your homeowner’s insurance premium. The purpose of homeowner’s insurance is to help you replace or rebuild your home if damage were to ever occur, so the amount of coverage you should purchase should allow you to just do that. There is no need for extra coverage if you will never use it.
Typically, when you bought your home the lot it was sitting on was included in the cost of your home. The value of the lot can be determined and deducted from the amount you paid to determine the actual value of the home you should insure against. So, if you paid $350,000 for a home on a third-acre lot and the lot itself is valued at $60,000, then the value of your home is roughly $290,000.
You can verify this amount by determining the cost it would be to rebuild a similar size and style home. Check with a local construction company or even real estate agent for the building cost per square foot for homes in your area. Multiply this amount by the square footage of your home to determine the amount it would cost to rebuild your home – this is the amount of coverage you would need at minimum to ensure you could replace your home if it were damaged beyond repair. For example, if your home was 2,300 square feet and the local cost per square foot in your neighborhood was $126, then the cost to build a home of your size is roughly $289,800.
If you want added protection to ensure that your coverage level is enough to cover any claim, then you can purchase add-on coverage like “Extended” or “Guaranteed” replacement coverage cost policies. Extended replacement coverage cost policies will pay an extra X% in addition to your regular coverage limits. Guaranteed replacement coverage policies will cover the cost to rebuild your home as close to it was before the damage, even if the cost of materials has increased since your home was built.
There’s no need to pay for over coverage when you can pay for smart coverage.