Consumer Preparation / Residential

September 2009 

Before The Storm
Homeowner’s Insurance Checkup is Critical as Weather Experts Warn
of Continued Cycle of Increased Hurricane Activity

The Florida Insurance Council
P.O. Box 13696
Tallahassee, FL 32317-3686
(850) 386-6668

Sam Miller
Executive Vice President
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Gary Landry
Vice President
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(This paper was prepared by the Florida Insurance Council from information provided by the Insurance Information Institute, the American Insurance Association and Property Casualty Insurers Association of America.)

This White Paper concentrates on specific areas of a homeowners’ policy to help policyholders determine how well he or she is prepared for the 2009 hurricane season. While most insurance companies and agents regularly contact homeowners to ensure that their insurance policy limits keep up with the value of their home the Florida Insurance Council urges every homeowner to take the initiative and contact your agent if you have not been contacted by your
agent for an annual checkup.

Policy Limits Must Be Adequate
to Replace the Home if That Becomes Necessary

Most homeowners pay for their insurance through the lending institution and their escrow account. The lender may determine the insurance amount, based on the purchase price of the property or the mortgage amount. You should make sure the insurance amounts are adequate to replace the home—not only at closing but well into the future as well.

Local building costs may have risen, or the home may have been remodeled or expanded. In these cases, the amount of coverage should be increased. Homeowners also should maintain an up-to-date inventory of personal belongings and consider purchasing extra coverage for expensive items, such as jewelry, art collections or fur coats. Premiums will increase as the insurance amounts increase, but usually only minimally.

Some insurers will offer an inflation guard clause to your policy. This automatically adjusts the dwelling limit when you renew your policy to reflect current construction costs in your area.

Federal Flood Policy is Necessary for Flooding and Storm Surge Coverage

Standard homeowners policies do not cover damage from floods, including storm surge from a hurricane, which is considered flooding. Much of the damage from Hurricane Ivan in west Florida and to homes on barrier islands was caused by storm surge. Insurance for flooding and storm surge is available from the National Flood Insurance Program. Information should be available through the agent handling the regular homeowners policy, but also from the National
Flood Insurance Program or by calling 1-888-379-9531.

Make Sure You Know Your Hurricane Deductible

Most homes in Florida, 70 percent, have a special deductible for hurricane damage in the amount of 2 percent of the policy limits. In return for the higher hurricane deductible, consumers receive a premium discount on the wind portion of the policy, usually 10 to 20 percent. This has been law in Florida for more than 10 years and is common in 17 other hurricane-threatened states. It is important that consumers recognize their deductible and, if possible, set aside the savings from their insurance premium discount, to cover the deductible in the event there is damage to their home.

Making sure you have adequate insurance has always been critically important, but it isespecially so in light of Florida's 2004 and 2005 hurricane seasons. In each of those years Florida was struck by four back-to-back storms in which the insurance industry paid out nearly $40 billion in claims. Prior to 2004, the last time a state faced four major hurricanes in a single year was in 1886 when four storms hit the state of Texas.

Despite a relatively calm 2006 hurricane season, weather experts warn us not to be complacent. They warn that we remain in an abnormal cycle of increased hurricane activity. In fact, for 2007, forecasters predict a season 40 percent more activity than average.

How Much Homeowners Insurance is Prudent?

You need enough insurance to cover the cost of rebuilding your home at current construction costs. Don't include the cost of the land. And don't base your rebuilding costs on the price you paid for your home. The cost of rebuilding could be more or less than the price you paid or could sell it for today.

Some banks require you to buy homeowners insurance to cover the amount of your mortgage. If the limit of your insurance policy is based on your mortgage, it may not be enough to rebuild your home. (If your mortgage is paid off, don't cancel your homeowners’ policy. Homeowners insurance protects your investment in your home.)

For a quick estimate of the amount of insurance you need, multiply the total square footage of your home by local building costs per square foot. To find out construction costs in your community, call your local real estate agent, builders association or insurance agent. If major improvements have been made to your home since your policy limits were set, for example an additional room or swimming pool, your current policy limits may not be adequate.
Homeowners should contact their insurance agent each time there is a major enhancement to
their dwelling.

Homeowners Insurance Won't Cover Flooding or Storm Surge, So a Federal Flood Policy May be Necessary

Standard homeowners policies provide coverage for disasters such as damage due to fire, lightning, hail, explosions and theft. They do not cover floods, including storm surge from a hurricane, which is considered flooding, or damage caused by lack of routine maintenance.

Flood insurance is available from the Federal Insurance Administration from the National Flood
Insurance Program


It usually can be placed by the agent handling the regular homeowners policy. Information
probably can be obtained through the agent, but also from the National Flood Insurance Program or by calling 1-888-379-9531.

Banks and other lenders will usually require flood insurance if the property is located along the Gulf of Mexico or Atlantic Ocean or otherwise in a flood zone. Much of the damage from Hurricane Ivan in west Florida to homes on barrier islands was caused by storm surge. Homeowners would not have adequate protection if they did not have flood insurance from the National Flood Insurance Program. Flood insurance is also a wise investment if your home is located on an inland pond, including a golf course pond, because damge from rising waters would not be covered by the regular policy.

Replacement Cost & Extended Replacement Cost Coverage on the Structure

Most policies cover replacement cost for damage to the structure. A replacement cost policy pays for the repair or replacement of damaged property with materials of similar kind and quality.  There is no deduction for depreciation -- the decrease in value due to age, wear and tear, and other factors.

Extended replacement cost coverage: after a major hurricane or a tornado, building materials and construction workers are often in great demand. This can push rebuilding costs above homeowners’ policy limits, leaving you without enough money to cover the bill. To protect against such a situation, you can buy a policy that pays more than the policy limits. An extended replacement cost policy will pay an extra 20 percent or more above the limits, depending on the
insurance company.

Even with extended replacement cost coverage, the insurance might be insufficient if the policy limits have not been adjusted to keep abreast of increased construction costs in your area. The periodic insurance checkup is very important. If you purchase a flood insurance policy, coverage for the structure is available on a replacement cost basis.

Building Code Upgrade Coverage

Building codes are updated periodically and may have changed significantly since your home was built. If your home is badly damaged, you may be required to rebuild your home to meet new building codes. Generally, homeowners’ insurance policies won't pay for the extra expense of rebuilding to code. Many insurance companies offer an Ordinance or Law endorsement that pays a specified amount toward these additional costs. (An endorsement is a form attached to an insurance policy that changes what the policy covers.)

Personal Possessions

Most homeowners insurance policies provide coverage for your personal possessions in amounts approximating 50% to 70% of the amount of insurance you have on the main structure or "dwelling". The limits of the policy typically appear on the Declarations Page under Section I, Coverage C. Contents.

To determine if this is enough coverage, you need to conduct a home inventory. This is a
detailed list of everything you own and information related to the cost to replace these items if
they were stolen or destroyed by a disaster such as a fire. If you think you need more coverage, contact your agent or insurance company representative and ask for higher limits for your personal possessions.

Replacement Cost or Actual Cash Value Coverage for Possessions

You can insure your possessions in two ways. You can either insure your belongings for their actual cash value or their replacement cost. A cash value policy pays the cost to replace your belongings minus depreciation. A replacement cost policy, on the other hand, reimburses you for the cost to replace the item.

Suppose, for example, a fire destroys a 10-year-old TV set in your living room. If you have a replacement cost policy for the contents of your home, the insurance company will pay to replace the TV set with a new one. If you have an actual cash value policy, it will pay only a percentage of the cost of a new TV set because the TV has been used for 10 years and is worth a lot less than its original cost. Some replacement cost policies also replace the item and deliver it to you.

Generally, the price of replacement cost coverage is about 10% more than actual cash value. If you need a flood insurance policy, you can purchase flood insurance for your belongings. It is only available, however, on an actual cash value basis.

There may be limits on how much coverage you get for expensive items such as jewelry, silverware and furs. Generally, there is a limit on jewelry for $1,000 to $2,000. You should ask your agent or look it up in your policy. This information is in Section I, Personal Property, Special Limits of Liability. Insurance companies may also place a limit on what they'll pay for computers. If the limits are too low, consider buying a special personal property floater or an endorsement. These allow you to insure these items individually or as a collection. With floaters and endorsements, there is no deductible. You are charged a premium based on what the item (or collection) is, where you live and its dollar value.

Additional Living Expenses After a Disaster
This is a very important feature of a standard homeowners insurance policy. This pays the additional costs of temporarily living away from your home if you can't live in it due to a hurricane, fire or other insured peril. It covers hotel bills, restaurant meals and other living expenses incurred while you are unable to inhabit your home. Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20% of the insurance on your house. Some companies will even sell you a policy that provides you with an unlimited amount of loss of use coverage, for a limited amount of time.

Flood insurance does not include additional living expense coverage, so this assistance will not be available when damages to a home occurred from flooding or storm surge.

Hurricane Deductibles

If your home is valued at more than $100,000, your deductible for hurricanes is probably two percent of the policy limits - not $500, the common deductible for other perils. In return for  the higher hurricane deductible, you receive a premium discount, usually 10 to 20 percent. Seventy percent of homes in Florida have a 2 percent hurricane deductible, which would mean you could pay for the first $4,000 of damages on a $200,000 home and higher amounts on higher priced

This has been law in Florida for more than ten years and is common in 17 other hurricane-threatened states. It is noted in bold print on the homeowners’ insurance policy. Some hurricane victims, however, were surprised by their percentage hurricane deductible. It is important that consumers recognize their deductible and, if possible, set aside the savings from their insurance premium discount,  to cover the deductible in the event there is damage to their home.

Homes valued at $100,000 or less probably have a $500 hurricane deductible, although the owner has the option of purchasing a 2 percent deductible at a lower premium. Homes valued at more than $350,000 may have a 5 percent hurricane deductible.

Liability to Others

This part of your policy covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It also pays for damage caused by pets. It pays for both the cost of defending you in court and for damages a court rules you must pay up to policy limits.

Generally, most homeowners’ insurance policies provide a minimum of $100,000 worth of liability insurance, but higher amounts are available. It is recommended that homeowners consider purchasing at least $300,000 to $500,000 worth of coverage of liability protection.

Umbrella or Excess Liability

You should buy enough liability insurance to protect your assets. If you own property and or
have investments and savings that are worth more than the liability limits in your policy, you
may consider purchasing an excess liability or umbrella policy.


At the beginning of each hurricane season, Florida Insurance Commissioner Kevin McCarty urges Floridians to purchase flood insurance to protect their homes. This is a 2007 news release, but it is still current and important.

Excellent report from Property Casualty Insurers of America. Steps to take before a hurricane in case you have to file an insurance claim later and what do you do if your property is damaged by a hurricane.

If I Have Hurricane Damage!!