For just about any family in America, the home is their most valuable asset. It’s where you relax, where your children play and grow up and where holidays and special occasions are spent. That’s why the value of the home you created, nourished and grew is so immeasurable. To you and your family, your home is priceless.
But in the insurance marketplace, your home does have a measurable value. And right now, despite lower market values, your home may be undervalued. So, it’s recommended to review your home’s insured value.
“Ensuring that your home is properly valued will cover the costs of rebuilding and make sure that you’re not so underinsured as to incur large out-of-pocket expenses,” says Karisa Knight, the vice president of Royal Marine Insurance Group (RMIG).
Smart Business spoke with Knight about home valuations, how insurance changes are affecting homeowners and how to ensure your home is properly valued.
Are there recent changes to homeowner insurance that affects South Florida?
Yes, this year Citizens Insurance Company (Citizens) has revised the ‘wind only’ policy form. Any wind only policy written on a single family home will be non-renewed and then subsequently re-written on the new form. Key to this change is Citizens now requires the limits on the wind only policy to be equal to the limits on the homeowner’s. So, if your homeowner’s policy is undervalued, your Citizens policy will be, too, and vice-versa. This means at the time of a claim, if the home was underinsured to begin with, you may be violating the co-insurance law, which requires a property to be insured at a minimum to 80 percent of its replacement value and affects the amount paid in a claim settlement. If your home is overvalued, then you’re paying excess premium.
What should you do about these changes?
First, confirm that your home doesn’t qualify for an alterative market that includes wind with a homeowner’s policy, including Dade, Broward and Palm Beach counties. These alternative markets can also write auto, secondary homes, personal umbrella, collections, excess flood, K&R and other like policies to create a packaged account that will streamline a family’s management of multiple polices. An additional benefit is claim settlement; these markets have restricted capacity to ensure timely response to their insureds and have established vendor networks to aid in repairs.
If Citizens is where windstorm coverage must be obtained, then you must ensure your homeowner’s values are realistic and in line with today’s replacement costs. Also, amend your homeowner’s policy, since proof of these values has been requested by Citizens when the policy is re-written and the value exceeds $500,000.
Also, a wind mitigation inspection is often required by insurance companies to document the existence of roof, wall and opening protection features in accordance to the Florida Building Code. This form ensures a wind policy receives those applicable credits, which directly impacts the premium. Many times, an unsuspecting insured will have a wind policy rated incorrectly and will pay hand over fist.
How can you ensure your homeowner’s policy has the proper limits?
Having a professional conduct a replacement value inspection that outlines the many factors that contribute to how the home or condo’s dwelling value is computed is key. These reports take out the guess work and are calculated using the latest construction figures. When reviewing your insurance policy at renewal, don’t forget to include any improvements, renovations or acquisitions when reviewing values. The home’s insured value is not to be confused with a home’s market value. They are not related and, yes, with today’s market, a home’s insured value can be more than what it could sell for.
Some factors to consider when determining the values for those coverages included in a homeowner’s policy include interior and exterior finishes (Are the floors Italian marble or wood? Are the counters lapis or corian?), and other structures not attached to the home (gated entrances, walls, pools, surrounding patios, driveways, BBQ areas, docks and sea walls).
Regarding personal property or ‘contents’ coverage, don’t forget to include clothing, shoes and accessories. What if your personal property is considered a collectible? Fine art, silverware, jewelry and one-of-a-kind items should be on a separate collections policy since they are excluded from a homeowner’s policy. Other coverages standard in a homeowners policy include your liability to others, cost of additional living expenses if your home is damaged and you have to live elsewhere during repairs, and law and ordinance coverage, also referred to as rebuilding to code. Building codes change periodically and may have changed significantly since a home was first built or renovated. Generally, polices do not provide for the extra expense of rebuilding a home to code even if the policy is at guaranteed replacement cost. Law and ordinance can be endorsed to a policy if it is not part of the policy’s standard coverages.
Also, if you’ve had your policy with the same carrier for many years and the policy includes a built-in inflation factor, check that the current value is not overinflated due to compounded inflation.
What factors influence the cost of rebuilding your home?
There are many factors that influence a home’s replacement value: local construction costs, square footage, type of materials used and costs of commodities. Does your home have unique features requiring a special skill set? Is it in a remote location, or in the case of a condo, are there limited hours allowing contractor access? If there are many condos under repair, is there limited access to deliver materials? All of these things add to the cost of a claim.