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.