Finding Your Best Fit Versus Going Bare

How to Buy the Right Amount of Insurance

As the peak of hurricane season approaches, Floridians should be reviewing their homeowners’ insurance policies and ensuring they have the right coverage. Instead, some are scrambling to shed their windstorm coverage to save on their insurance costs.

A rule enacted July 1 by the Florida Office of Insurance Regulation permits homeowners to purchase policies without windstorm coverage. This exception is only available to homeowners who don’t have mortgages. Typically these are wealthier individuals who own high-valued homes and have more complex insurance policies. Instead of scrapping windstorm coverage – a decision that can prove costlier in hurricane-prone Florida – homeowners should work with trusted experts to trim the hidden fat and make sure they aren’t paying for coverage they don’t need. Some important factors to consider:

Other Structures.  It’s common for insurance companies to automatically include coverage for garages, guest houses and other permanent structures with a limit of 20 percent of the main dwelling.  Trouble is, this coverage carries real costs and may not be necessary.  Homeowners who don’t have other structures obviously shouldn’t have to pay to insure them. They should closely check their policies to make sure they’re not being charged.  Some insurers may not allow opting out of this coverage, but homeowners shouldn’t let their insurers tell them there’s no cost for that coverage.

Additional Living Expenses. This important coverage provides for extra expenses incurred after a loss, particularly the cost to rent alternative accommodations.  Those who insure their primary residences should buy as much of this coverage as they can. However, those who insure their second or third homes should consider reducing their coverage limits or opting out of this coverage altogether if they don’t expect they will need to rent alternative accommodations. Again, although insurers might suggest this coverage is included at no extra cost, the truth is that some policyholders will inevitably subsidize those who take full advantage of this coverage.

Higher Deductibles.  Before dropping hurricane coverage, homeowners should consider the premium savings provided by higher deductibles.  Some programs offer deductibles as high as 25 percent of the home’s value for premium discounts of up to two-thirds of the windstorm premium.  A very high deductible (with an appropriate credit) is likely to be a smarter alternative to having no coverage at all.

Insuring Valuable Jewelry and Art.  Although some homeowners might feel tempted to reduce the amount of coverage for the contents of their homes as a way to control costs, they should remember that a loss to a valuable painting could exhaust their entire policy limits.  It is often cheaper to complement a homeowners insurance policy with a separate policy that covers all types of valuables.  This can provide better coverage, lower deductibles and a premium savings.

Flood Insurance.  If a major hurricane strikes, flood insurance is critical. The National Flood Insurance Program currently limits home coverage to $250,000  This may be improved with the purchase of excess flood coverage.

Coverage Limits. Homeowners should insure their homes for limits that would cover the cost to rebuild their homes in the event of a hurricane, fire or other major loss. Although this may mean increasing coverage limits, this is vital to ensuring that the policies are appropriate for each home.

Dropping windstorm coverage might seem like a quick and easy way to save money, but it can be much more costly in the event of a storm. Wise homeowners will work with trusted insurance experts to closely evaluate their policies, trim hundreds of thousands of dollars of unwanted or unneeded coverage and obtain policies that meet their specific needs. By doing so, homeowners can actually reduce their costs and get better insurance for the proper value of their homes that includes critical coverage such as excess flood.