The Key Factor Almost Everyone Overlooks When Buying a Place for Retirement

Category: Financial and taxes in retirement

Editor’s Note: We are indebted, as we so often, to our senior member OldNassau for suggesting this topic. Thanks!

January 2, 2012 — Resale value, Neighborhood, Home Owners Association fees, Amenities, Taxes, Climate – check, check, check, check, check, and check! Most people looking at a place to retire usually carefully consider these and many other factors before they make an offer on a home. Unfortunately, they often miss what can turn out to be an extremely important factor – the cost of home owners insurance premiums for that new home. While the cost of home insurance might not be terribly important in many areas of the country, it is critical in regions that are subject to natural disasters like hurricanes, tornadoes, wildfires, and earthquakes. Annual costs for premiums can easily exceed what a homeowner pays for property taxes, which is normally the biggest tax and one of the largest expenses that a retired person pays.

Before You Buy – Get a Home Owners Insurance Bid
It can come as a big and unpleasant surprise for new home owners to learn that seemingly identical homes in the same town can come with dramatically different insurance premiums. That is why we recommend getting an insurance quote before you make an offer on a new home. One cost factor is surprisingly simple – the distance the home is from a fire hydrant. If it is too far away, the company figures a tanker truck will be needed to douse a fire, which is typically a much less effective weapon than a pumper attached to a nearby hydrant. Building materials can make a difference too. In fire prone areas, concrete based products for roofs and siding can save your home. Hurricane shutters are a must in areas subject to hurricanes. They can change your policy rate – and allow you to qualify for coverage from more companies instead of just one or two. While it is a little hard to see the benefit of these shutters at first, consider this. The usual way a house gets destroyed in a hurricane is either from water coming in or being struck by a foreign object. Typically a nearby home gets blown apart, and debris from it hits your home. If it breaks through an unprotected window, your home’s integrity is compromised. Then your home basically explodes as high winds rush in and blow out your roof. The presence of alarm and security systems, electrical upgrades, etc. are other factors that can positively affect your premiums.

Equally important is to find out what kind of coverage is available, and at what cost. You might be required to (or want to) buy flood insurance. As many residents of the Northeast discovered this summer, water damage is not usually covered by home insurance policies. Sometimes wind damage is excluded or only partially covered. Earthquakes require their own policies as well.

Coverage Harder and Harder to Find
The situation in Florida, the East Coast of the Atlantic, and the Gulf Coast from Texas to Alabama is a case study to the problem of getting affordable home insurance. In Florida many insurance companies have stopped offering home insurance policies to avoid getting caught again as they did in years like 2005, when multiple hurricanes like powerful Wilma and Katrina swept through Florida, New Orleans, and the Gulf Coast east to the FL panhandle. Insurance companies like Allstate and State Farm are trying to shed policies for the same reason. As a result the state-backed Citizens Property Insurance Company has become the home owners insurance company of last resort in Florida. It now has over 1.5 million policies written. The State would like to try to reduce that number by encouraging more private companies to offer coverage.

Citizens has come under fire for its aggressive use of home inspectors looking for risk factors that would allow the company to increase premiums more than the 10% annual raise permitted under state law. The Palm Beach Post recently reported the case of Bonnie Pearce, who saw her premiums rise 25% after an inspection by Citizens. The company plans on spending $32 million for home inspections in 2012 – all with a goal of allowing it to increase premiums to better match the risks represented by its policy holders.

Consider – and Manage – Your Insurance Premiums Now
While homeowners are understandably outraged by the dramatic and regular rise in their homeowners insurance premiums, they are not powerless. There are ways to reduce your risks and your premiums, if you take the initiative. We have just written a companion article on just that – the Top Ways to Reduce Your Home Owners Insurance Premiums – don’t miss it!

Comments: Have you been burned by out of control home owner insurance costs? Done things to save money on your premiums? Please share your experiences in the Comments section below.

For further reading:
Best Ways to Reduce Home Owners Insurance Premiums
Home Owners Rates Continue to Escalate Despite Lack of Hurricanes
State Farm Dumps Policies

Posted by John Brady on January 2nd, 2012

13 Comments »

  1. If you’re building on/near the ocean (we live directly on the ocean in Florida), consider installing impact-resistant garage doors. We put these in. According to the Federal Alliance for Safe Homes, “about 80% of residential hurricane damage starts with wind entry through the garage doors.”

    Jan Cullinane, The New Retirement: The Ultimate Guide to the Rest of Your Life (Rodale)

    by Jan Cullinane — January 3, 2012

  2. Folks who live on the water will be unpleasantly surprised at what is going to happen to your premiums over the next several years. Citizens is over extended and the correction is going increase homeowners premiums here in Fl.

    by Maryland C — January 4, 2012

  3. I learned last year while exploring homes in Florida , how high the cost of house insurance can be the closer to the ocean you live. I then checked with family and friends on the cost of house insurance in their Florida home. Sure enough those closer to the Ocean pay a lot more. I have broadened my retirement search to middle areas of Florida as well.

    by marlene S — January 4, 2012

  4. I still prefer the Phoenix area. I can drive to the beach in a few hours if I want to. The mountains are also about an hour away. Taxes and insurance are very low and there is no weather hazards to speak of. Summer days are hot and dry, but the rest of the time the weather is magnificient.I lived there for 6 years and cannot wait to move back.

    by Joel — January 4, 2012

  5. In the early 90’s I owned property in Rhode Island. Although I couldn’t even see the water from my place, I was officially in a ‘flood zone’. So in addition to regular home owner’s coverage I had to purchase flood insurance. If you are going to carry a mortgage you will be required to have this and it is very expensive. At that time it was about twice the cost of my homeowners coverage. So if you are anywhere near (my place was about 2/3 mile from the ocean) water you should check to see if it is in a flood plain. You may be surprised. You may still opt for it, as I did, but knowing ahead of time is always better than being surprised.

    by Mejask — January 4, 2012

  6. Luckily, you can research the flood zone issue at http://www.floodsmart.gov/floodsmart/. However, are there other major factors affecting homeowners insurance other than weather? What are they? Should we check to see what kind of insurance history is on the home? For instance, I have a friend that lost his home to fire. The insurance didn’t pay because he installed the wiring and is not an electrician. Would I want to buy his home assuming it was a minor fire but now the insurance companies have a black mark on this property? Is there such thing as a black marked property??

    by AJ — January 4, 2012

  7. Flood risk is one of the most arcane factors for homeowners when determining the appropriate level of coverage for their home. Most people beleive that if they are above the designated flood zone they are safe from flooding. The reality ,is that they could experience a 500 year storm [we’ve had two 500 year storms during the past six years in central Texas]. This topic is too complex for a brief comment however I would encourage potential home buyers retain the services of an expert in flood hydrology rather than simply relying on a report from the title company

    by joe verdoorn — January 5, 2012

  8. Re: “Annual costs for premiums can easily exceed what a homeowner pays for property taxes, which is normally the biggest tax and one of the largest expenses that a retired person pays.”

    Because of Florida’s Save Our Homes constitutional amendment limiting Florida residents’ primary homes’ assessments to 3% annually, many Florida homes have artificially low property taxes. When the home is sold, the assessment, and the tax, adjust (aka “jump”) to contemporary market levels. To avoid an unpleasant surprise, Florida resale home buyers should ascertain what their future taxes will be. (This same concept might apply in other states, such as California).

    by Old Nassau — January 5, 2012

  9. I would think the idea of living right on the coast would have waned with people. I know people love to live on the beach, but if you’re that worried about the increased costs, move. Most people retired, are on fixed income. Anyone who can afford it, just have to know that with increased risk, costs increase. I like Joel’s idea of phoenix. Great time to buy their and Vegas. Property prices very good.

    by Timothy — January 6, 2012

  10. I am new to Topretirement and blogging. I’m just wondering if there is anybody that has lived or
    does live in either Sun City in Las Vegas or Siena in Las Vegas, as I’m thinking of moving to Las
    Vegas? Any information of advice will be welcomed.
    Monika

    by Monika Andreas — January 7, 2012

  11. Monika,
    I visited Sun City in Vegas and it is GREAT!!! Very active community and you can get around on a cart if you desire and that is a big plus for me as I know I will have to find alternative transportation as I age.

    by sandy — January 9, 2012

  12. We looked at a number of 55 gated areas in Las Vegas Nice Communities. But It seemed like a blast furnace when we were there Way too hot for us. We will pass.

    by Brad — January 11, 2012

  13. As both a real estate appraiser and a native Floridian I have two comments:
    Flood insurance: There are flood maps available from FEMA – an appraisal has to consider the FEMA flood classification. You can look at these on-line at
    https://msc.fema.gov/webapp/wcs/stores/servlet/FemaWelcomeView?storeId=10001&catalogId=10001&langId=-1 They will try to sell them to you, but you can look for free.
    Living in Florida: First, the middle of the state – you get heat, humidity, mosquitos, alligators and snakes; however, you do not get the sea breeze. Second, barrier islands – are intended by nature to be temporary structures and hurricanes are the force used to rearrange them. If you live on a barrier island, you deserve anything you get and the rest of us should not have to bail you out. Finally, you want to be able to smell salt water but not see it. This way you get the sea breeze and avoid the worst hits of the hurricane.

    by Alan J — January 13, 2012

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