WHAT IS A HOMEOWNERS INSURANCE POLICY?

A homeowners insurance policy, sometimes referred to as a Hazard policy, is an insurance policy that covers your home for a variety of risks and perils, including things such as lightning, storm, sink hole, theft of personal property, liability, loss of use, hurricane damage, burst pipes, etc.  

WHAT TYPE OF HOMEOWNERS INSURANCE POLICY DO I NEED FOR MY HOME LOAN?  

When applying for a home loan, lenders are primarily interested in making sure that A) your insurance carrier is A-Rated, and B) your home has sufficient replacement cost coverage, which is based on the replacement cost amount on the property appraisal report.  If you're buying a new home, this usually means the sales price of the home, and if you're refinancing your existing home, it is based on the licensed appraiser's indication on their report.        

WHAT DOES A HAZARD POLICY COVER?  

PMI allows you purchase more home with less than a 20% down payment using conventional financing. Banks traditionally prefer you to put 20%, but the PMI policy helps balance the risk for the lender, so the lender will lend more against the value of the home.

WHAT IS THE DIFFERENCE BETWEEN A HO-3 POLICY AND A HO-6 POLICY?

HO-3 and HO-6 are terms for two different policy types, which vary by the type of home you are insuring.

• SINGLE FAMILY HOME - If you are insuring a single family home, then you will need a HO-3 policy.  A HO-3 policy covers the entire structure of the home, including the roof and the interior and contents.  
• CONDOMINIUM, TOWN HOME, VILLA, CONDOTEL - If you are insuring a condominium, town home, villa or condotel, then you will most likely need a HO-6 policy.  A HO-6 policy covers the home from the drywall-in, including contents, and does not cover the exterior of the home. When purchasing a condo, town home, villa or condotel, be sure to ask your Realtor to contact the Homeowners Association (HOA) to make sure that your HOA dues include the coverage of a master policy that insures the exterior of the home.  If it does not, then you may need a full HO-3 policy.    

HOW TO SAVE MONEY ON YOUR HOMEOWNERS POLICY

There are a few ways to save money on your policy.  Always consult your insurance agent and explain your situation, budget and goals to make sure that the policy gives you coverage that you can afford, while offering a premium and deductible to make the policy useful should you ever need to use it.

THINGS TO CONSIDER:

1. WIND MITIGATION REPORT – when you go under contract on a home, most home buyers order a home inspection.  If the home was built before 2002, then a wind mitigation report may offer you significant discounts on your premium, depending on the condition of the home.  A wind mitigation report looks at 7 different factors that can each offer you a discount on your premium, including the shingles, roof decking, roof trusses, windows, doors and all openings where wind can enter.    If you order the wind mitigation report at the same time as the home inspection, then the home inspector may offer the report at a substantial discount, since they would not have to make a separate trip to the home.  
2. DEDUCTIBLE – These days, many insurance companies offer lower premiums if you accept a higher deductible.  A deductible is the amount of money that you must pay when filing a claim, before the insurance policy will pay their coverage portion.  In Florida, there are TWO deductibles to consider on each policy,  1) standard coverage and 2) hurricane coverage (based on a percentage of the dwelling limit).  Always ask your insurance agent about the amount of coverage you need and weight this with the deductible to make sure that you afford the deductible, should you ever need to file a claim.

WHAT IS FLOOD INSURANCE?  

Flood coverage covers your home if water enters the home from the oustide, and is required by the lender if your home is located in a designated flood zone.  Flood zones are determined by the Federal Emergency Management Agency (FEMA) and they measure the elevation of the home relative to the standard water level in the area.  They routinely monitor flood claims and continually update their maps to ensure the data is kept current.  When you apply for a home loan and insurance, a Flood Certificate will be obtained from the FEMA database to determine if the home is located in a zone where flood coverage is mandatory, which is commonly referred to as a "Flood Zone".  

Flood zones have codes:

The most common is flood zone "X", in which flood insurance is optional for the homeowner.  CLICK HERE FOR A FULL LIST OF FLOOD ZONE CODES

• Zone X, Zone C - Areas determined to be outside 500-year floodplain determined to be outside the 1% and 0.2% annual chance floodplains.

• Zone B, Zone X500 -  Areas of 500-year flood; areas of 100-year flood  with average depths of less than 1 foot or with drainage areas less than 1 square mile; and areas protected by levees from 100-year flood.  An area inundated by 0.2% annual chance flooding.

• Zone A - An area inundated by 1% annual chance flooding, for which no BFEs have been determined.

• Zone AE - An area inundated by 1% annual chance flooding, for which BFEs have been determined.

• Zone AH - An area inundated by 1% annual chance flooding (usually an area of ponding), for which BFEs have been determined; flood depths range from 1 to 3 feet.

WHAT IS THE DIFFERENCE BETWEEN A HAZARD INSURANCE POLICY AND A FLOOD POLICY?

The difference between a hazard policy and a flood policy lays in how each policy deals with water--or more specifically, how the water entered the home.  For instance, if the water enters the home from the outside-in, then this would be covered as a flood policy claim.  If a pipe burst inside the home and the home was damaged by water that originated from the pipe, then this would likely be covered under the standard policy claim.

MY HOME IS NOT IN A FLOOD ZONE.  SHOULD I GET A FLOOD POLICY?

Even if your home is not listed in a flood zone, you may want to consider getting a flood policy.  Here in Florida, a home can flood under the right conditions, even if it seems improbable.  The good news is that if the home is not listed as  being in a mandatory flood zone, then the policy premium may be much lower than you think.   You can pay the policy yourself through your agent without adding it to your monthly mortgage payment.  Ask your insurance agent for details.  

PUBLIC (FEMA) POLICIES vs PRIVATELY-INSURED FLOOD POLICIES

Until recently, the state of Florida had few flood insurance options and most homeowners were forced into a state-regulated FEMA policy.  The FEMA policy manages the risk of the entire state, including high-risk areas; however in the last few years, there are now policies available through private insurance companies and these often have significantly lower premiums than the FEMA policy alternative.  If you're getting a flood insurance policy, be sure to ask your insurance agent about this option.

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