Homeowner's Insurance Sanity Check

[spooky105]

From a long-time blog reader and occasional Forum lurker -- looking for a sanity check on how I'm thinking about Home Owner's insurance. I'm active duty military in the panhandle of Florida, about 1/3 of the way to FI:

Last year's policy was $1,337. New policy is quoted at $1,746. It covers everything except earthquakes with a 2% deductible (regular and hurricane). Regular deductible is at the max, and increasing the hurricane doesn't buy me much.

Outstanding mortgage is $270,000 (roughly what we paid for the house; VA funding fee was rolled into mortgage)

The bounds: I must have a minimum of $200,000 coverage for the property. Liability is already at the minimum required for my umbrella policy. The policy includes an adjustment of 5% should costs go up due to "Building Ordnance or Law," and an additional premium adds 25% more coverage on this front (I'm currently working with a rep to clarify how this coverage works in the real world -- I believe it may be unnecessary). However, I would lose "Home Protector" coverage which provides for up to 25% additional coverage to handle "increased building costs, building code changes, inflationary effects from material shortages or additional debris removal expenses" -- also unnecessary, I believe.

My thought:  although my current policy provides coverage for $231,000 and the new policy has increased to $250,000 based on new maths estimating "rebuild cost" I believe the minimum of $200,000 is adequate (and saves me $300/year in premiums, closer to $500 if I can dump the additional 25% O&L coverage).


CASES OF MINOR/MAJOR DAMAGE

I'm out $4,000 for the deductible and covered otherwise up to what amounts to a catastrophic claim.


CASE OF CATASTROPHIC DAMAGE

House burns down. Storm tears off entire roof and fills building with water. Etc. Insurance pays $200,000 plus 75% of personal property value of $150,000 ($112,500) unless I itemize (per the policy). I assess our personal property at well less than this so the difference (assuming we went out and replaced everything right away, which we wouldn't) covers most of the gap between $200,000 and the outstanding mortgage.

I see a catastrophic loss of the house either being isolated (in which I case I would not feel inflationary effects of cleanup / rebuild) or affecting the whole region (in which case I would likely be operating from a different location with the family in tow/relocated to our home state, again isolating us from the inflationary effects of cleanup/rebuild). Worst case I return to the region for work, the family is back home with family, and I am couch surfing.


Not mentioned, but certainly a factor is the land value. A quick spot check of property records reveals knock down houses run about $60,000 and are replaced with new build houses around the $275,000 price point. Accordingly, I view just over $200,000 as a good proxy for cost to build a comparable new house of reasonable quality and the value of land somewhere around $40-$50,000. Mine is also slightly bigger and in a better location than most. But even assuming land value goes to $0 because the entire region is a disaster zone, it seems like I would be OK, give or take $10-20k. That's a cost I can certainly stomach for the worst of possible outcomes.


*After some more study and re-reads (still pending rep input on O&L) I am starting to see the extras of my policy (O&L, "Home Protector") as really a way to up-sell coverage. In other words, it's more like I'm buying a $250,000 or $300,000 policy but with a narrower coverage set for the last $50-100,000 of coverage. A spot check of quotes removing these but increasing dwelling coverage seems to bear this out, though I cannot do an apples-to-apples comparison with identical deductibles.


Thoughts?

[Nords]

The policy includes an adjustment of 5% should costs go up due to "Building Ordnance or Law," and an additional premium adds 25% more coverage on this front (I'm currently working with a rep to clarify how this coverage works in the real world -- I believe it may be unnecessary). However, I would lose "Home Protector" coverage which provides for up to 25% additional coverage to handle "increased building costs, building code changes, inflationary effects from material shortages or additional debris removal expenses" -- also unnecessary, I believe.

Thoughts?

Good luck with that. 

You're one CAT 5 hurricane away from destroying a dozen neighborhoods and thousands of homes along your coast, bankrupting your insurer, creating a huge repair/construction backlog, and forcing the state to enforce even more expensive building codes and tripling your premiums.  I forget which hurricane this was-- Andrew?-- in the 1990s, and then there's the prospect of a Florida version of Katrina.  This could all happen while your claims adjustor (hired at your own expense) is negotiating for years with your insurance company (which is lowballing you) and waiting for the contractor (who has a 10-month backlog) to get the materials (which have quadrupled in price and have to be shipped from the West Coast).

But I agree that you don't have to buy the coverage.  You might want to self-insure against those rebuilding ordinances and increased costs.  You'd use insurance for the catastrophic case (total destruction at the home's depreciated actual cash value) and pay for the rest of the expenses out of your pocket.

I've noticed that our home insurer (Armed Forces Insurance) tends to set a factor (for example, a multiple for the Adjusted Rebuilding Cost) and then just keep compounding it each year in autopilot.  I've learned to call them every five years and ask them to reassess the property (from a refinance appraisal or a property tax assessment) and to recalculate their additional cost factors.  Sometimes that reduces the premiums, other times they go up-- or I ask for a greater deductible and threaten to shop around.

One reason we're with AFI is because they're cheap, although I'm not totally confident that they could survive a 100-year insurance disaster.  Another reason we're with them is because they were able to give us larger deductibles than USAA.  A third reason is that USAA pulled out of Hawaii in the early 2000s (for everyone but first-time buyers) and only recently started offering coverage again-- at a premium at least 3x higher than AFI.