Basic Coverage Available
Depending on which company you choose, you may obtain one of several basic packages of homeowners’ insurance in Florida to protect your home and belongings. Each package protects against a specified number of perils, or events that cause damage to property, such as fire, windstorm or theft. Four categories apply to covered perils:
- Structure (the dwelling itself)
- Other structures (like sheds and fences)
- Personal property (the contents of the structures)
- Loss of use (also called Additional Living Expense or ALE) The first three are defined as “property.”
Property coverage helps pay for damage by covering perils to your home, the contents of your home and other personal belongings owned by you or family members who live with you. In some cases, it helps pay for damage to other structures, such as tool sheds, detached garages, small boats, guest houses and their contents. Your insurance agent or company can point out the items covered in a given policy.
Your average homeowners’ policy provides limited coverage for some personal property, such as antiques, firearms, jewelry, furs and electronics. You may need additional coverage as an endorsement, or addition, to your insurance policy, to modify its original terms for an additional premium.
Homeowners’ policies do not cover vehicles. Your agent or company can help you find coverage for items not included in your policy or different types of homeowners’ policies geared towards renters, and second / vacation homes.
Additional Living Expense (ALE)
Homeowners’ policies provide additional living expense coverage that will pay some extra expenses if damage to your home prevents you from living there while it is being repaired. Most policies also will provide this coverage when a civil authority (law enforcement agency, emergency management service, etc.) prohibits the use of a residence due to direct damage to neighboring homes by a covered threat.
The items typically covered – above and beyond normal expenses – include extra costs for food, housing, telephone, and transportation. Refer to your policy to find out what is specifically covered. This coverage applies only to differences in expenses. For example, it would apply to the cost of restaurant meals minus normal food expenses. It does not cover your mortgage, groceries and utilities or the monthly cost of a telephone in a rented space (since you normally pay for the telephone in your house).
Your policy may designate limited coverage for additional living expenses, but your policy does not obligate your company to pay this amount up front or in full if you suffer a total or partial loss. For this reason, you must keep receipts for additional living expenses and submit these to your company for reimbursement.
Additional living expense coverage does not apply to your dependent children while they are away at college. It applies only to the primary insured structure in the event of a loss.
Policies generally offer ALE coverage without any deductible. Flood insurance policies, however, don’t provide this coverage. For more information, contact your insurance agent or company.
Two additional types of coverage are known as personal liability and medical payments.
This coverage protects you against a claim or lawsuit resulting from (non-auto) bodily injury or property damage to others. For example, if a neighbor slips and falls in your house and sues you, and a jury finds you legally liable, this coverage would pay that claim plus legal fees up to the policy limits. This coverage applies to you and all family members who live with you.
It does not cover intentional damage or harm caused by you or family members who live with you. Check your policy for exclusions and discuss them with your agent.
Regardless of fault, this coverage pays for medical expenses, up to the medical payment limits, of persons accidentally injured at your home. It does not apply to your injuries or those of anyone living with you or to activities involving an at-home business.
Replacement Cost Versus Actual Cash Value
When buying coverage, you may insure your property and belongings for actual cash value or replacement cost.
Replacement cost is the amount needed to replace or repair your damaged property with materials of similar kind and quality, without deducting for depreciation (the decrease in the value of your home or personal property due to normal wear and tear).
Actual Cash Value
Actual cash value is the amount needed to repair or replace damage to your home after depreciation. For example, your insurance company would deduct for the age and condition of a 17-year-old roof with a 20-year life expectancy.
Here is how the two types of coverage work in practice.
Let’s say you bought a new $700 television in 2000. In 2005, a lightning strike destroys the TV. A policy for actual cash value will only pay an amount that reflects the TV’s current value – say, $300.
A replacement cost policy, however, would cover the entire cost of a new TV of the same type – say, $900. Legislation passed in 2005 requires full payment without a depreciation hold-back for personal residential policies in some cases.
Your agent must offer you replacement cost coverage for your dwelling. If you reject this coverage, you must sign a statement on the application form indicating that you don’t want it.
Standard replacement cost depends upon the dwelling limit stated on your policy. Insurance companies design most homeowners’ policies to require the policyholder to insure the dwelling for at least 80 percent of its replacement cost. And, while it is rare, you can insure your home for less than 80 percent. If you do so, you will be charged a co-payment penalty, in addition to your deductible, when you file a claim.
Some companies offer guaranteed replacement cost dwelling insurance – an option that costs only a few dollars more, and insures your home for an increased amount, even if it exceeds policy limits. Many companies will not offer guaranteed replacement benefits for older homes.
Inflation or room additions can increase the replacement cost of your home and its contents, while the actual cash value of your home may decrease over time. An inflation guard endorsement gradually increases your dwelling’s coverage limit annually to keep your insurance coverage up-to-date with current prices and inflation. It also may keep the policy value in line with increases in local building costs per square foot. If your policy lacks this endorsement, you are responsible for periodically updating your coverage with your insurance agent or company.
No matter how you insure your home, you should keep track of its replacement cost evaluation. Check with your agent or company once a year to make sure your policy provides adequate coverage.
Ordinance or Law Exclusion
Your agent must offer you ordinance or law coverage. If you do not wish to buy this coverage, you must sign a form stating that you reject it. Some companies automatically include this coverage for a limited amount. If a local building ordinance or law increases the cost of repairing or replacing your dwelling, the insurance company will not pay that extra amount, unless you had added ordinance or law coverage to your policy.
Most homeowners’ policies cover damage caused by windstorms, hurricanes and hail, but insurance companies may exclude this coverage in some high-risk areas. The Citizens Property Insurance Corporation provides homeowners with insurance in high-risk situations (like a home on the beach), and to consumers who can’t find coverage in the private market. The Citizens policy may have special coverage restrictions during hurricanes for lawn furniture, grills, fences and other such items.
The Hurricane Insurance Affordability and Availability Act offers homeowners a broader selection of deductible amounts. These deductibles depend on the value of the insured property and apply only to hurricane claims (i.e., resulting from a hurricane declared by the National Weather Service). Consequently, you may owe extra out-of-pocket costs for damage that occurs:
- Any time a hurricane watch or warning is issued for any part of Florida
- Up to 72 hours after such a watch or warning ends
- Any time when hurricane conditions exist throughout the state
New legislation passed following the 2004 hurricane season – when many homeowners had damage from multiple storms and faced multiple deductible payments – limits the number of times a hurricane deductible must be paid to once per calendar year, per insurance company. (If you change companies, you could pay two deductibles.) Once the hurricane deductible has been met, subsequent hurricane losses are subject to the “other perils” deductible.
Recent legislation eliminates maximum allowable deductibles, but requires a written statement, approved by the mortgage holder, if the deductible requested is in excess of 10 percent for a home valued at less than $500,000. This regislation also requires insurers to allow the insured to exclude windstorm coverage. Again, a written statement is required from the insured that is approved by the mortgage holder.
Some companies have recently begun to exclude damage caused by mold and fungus from their policies. Some offer a buy-back provision, and some limit the amount they will pay. For more information regarding insurance against water damage, you may order our publication “In the Event of Unexpected Water Intrusion,” or view it online at www.MyFloridaCFO.com.
Sinkholes and Catastrophic Ground Collapse
Recent legislation does not require Florida insurance companies to include sinkhole coverage on new homeowners’ insurance policies. However, they are required to inform homeowners that sinkhole coverage is available as an additional coverage, at an additional premium.
Also, legislation passed in 2007 requires insurance companies to include “catastrophic ground collapse” coverage in all homeowners’ policies. Catastrophic ground collapse is defined as “…geological activity that results in…the abrupt collapse of the ground cover; a depression in the ground cover clearly visible to the naked eye; structural damage to the building, including the foundation; and the insured structure being condemned and ordered to be vacated by the governmental agency authorized by law to issue such an order for that structure.”
How Much Insurance Should You Buy?
Do not rely on the purchase price of the home, the amount of the mortgage loan, or the amount set by the property tax appraiser or insurance agent. In order to be adequately covered, your home must be insured for the amount it will take to rebuild the home at current prices for building materials and labor costs, including the amount necessary to bring it into compliance with current building codes. Please contact your insurance agent, and consult a licensed contractor or certified property appraiser who will provide you with a detailed estimate. This is the only way to ensure that you have adequate coverage at the time of a loss.
If your home is underinsured at the time of a loss, there may be a penalty or reduction in the amount the insurance company will pay for the loss.
Give us a call today and we can supply you with a comparison of quotes from several top-rated companies.