For policyholders, an unexpected premium or rate increase on your policy can be quite detrimental as it pertains to your monthly payment. Learn how you can avoid these premium hikes, and keep your rates as low as possible as a buyer. There are five unexpected costs a buyer should be aware of, as detailed below.
1. Fun Accessories
You know those “fun” things in your home, they are also the nuisances an insurance company considers extremely risky, equating to a costly risk. A dog, believe it or not, is one of the costliest nuisances. A swimming pool is another well known reason your rates jump on a policy premium. Not only are they dangerous for the kids, but also visitors who use your pool (with or without permission).
With these risks, you can see why rates spike up so high; in addition to these two listed above, other common nuisances include:
Tree houses, zip lines, trampolines, diving boards or slides. They are dangerous, risky, and if they are on your property, can result in a major price increase in your premium rates.
2. Structural/design elements which are risky
Of course not all perils which hike up those rates are under your control; this is one category you must consider as a buyer if you are shopping for a new home, and want to keep rates down. Some of these items might already be in the home when you move in.A stove or wood burning fireplace account for up to 36% of rural residential household fires annually. This is one of those risks insurance companies look at.
A widening staircase or balcony are also risky in terms of policy premium hikes. They are accountable for 20 to 30% of falls in homes annually, which can lead to major injuries. This is noted by the Center for Disease Control and Prevention. Your appliances, shoddy plumbing work, wiring and other structural issues, are also dangerous which can lead to higher premium rates for owners. If your appliances are 25 years or older, it might be time to consider an upgrade.
3. A business run out of your home
Scanners, printers, computers, electronics, desks and chairs, phones; these are only a few of the items you are going to need if you run a business out of your home. If a burglary or a fire were to occur, these are additional items which require protection; and, they aren’t cheap to cover. Additionally, if clients visit the home, personal liability policies should be in place to avoid lawsuits or liability in the event of injuries.
For the best coverage, many home businesses should have an additional policy or endorsement; a designated business policy might be the better route to go as opposed to homeowner coverage, if your business posses many risks.
4. Those luxury items
Sure, the watches, clothing, and cheaper items you own are covered by a basic homeowner insurance policy and will be reimbursed for in the event of loss. But how about that Picasso painting, that pricey engagement ring, or your collection of Gucci leather jackets? These and other luxury items are extremely costly, meaning an insurance company is going to hike up your premium if you would like to have the added protection of insuring these items in your home.
Your home could be a serious target for theft or burglaries, simply having these items in it; so of course your rates are going to go up because of that. In some instance, separate insurance riders are required for items of a certain value. Big ticket items will benefit from a rider policy coverage, as the full value of these items is accounted for and protected with your homeowners insurance rates.
5. Where you live (the neighborhood)
Location, location, location. Yes we want the best when it comes to buying a home. But, just as compelling as it is as times, where we live can also mean a peril in terms of the rates you are going to pay when it comes to your insurance premiums as a homeowner. If burglary claims have risen where you live in recent years, a rate increase might follow. This also goes for claims of fire, or other policy coverage protection. As an owner, simply because you live in those areas, you are going to pay the price for it, even if you never have to use your policy. This means even if you’ve never had an incident or filed a claim, the price of your premium can jump a great deal, just because of the area you live in.
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Those mishaps in the area, might pose a greater risk for you as an owner in that area. So this is one of the reasons which insurance companies give if you live in an area which is risky or has seen many claims in recent months and years. As an owner, you and your belongings are potentially at risk meaning you are going to pay a higher price to protect these items and your home.
This basically means if the number of house fires goes up where you live or on your block, or if several burglaries start popping up in the area you live in, your home is considered to be in a “risk area.” This means you are living in an area which is prone to threats, meaning you are living in an area which is not considered to be safe by the insurance provider you have your premium coverage with.
It is important to know what you are paying for, and what might cause those rates to increase as it pertains to your premiums on a homeowners policy. With Coastal Insurance, not only can you rely on the top agents to help you find the right level of coverage, but also to fully understand what is protected under your policy. Further, the agents you speak to are going to address your issues, concerns, and are always available to answer any questions you have, as they pertain to your policy, the rates, or additional coverage that you want to add to the existing policy that you already have in place with the insurer.
So you’ve decided to buy a new home. However, unlocking the door to your first home isn’t as simple as finding the right location. Once you’ve found that location, you need to compare prices, financing options and get through those challenges beyond simply finding the home with the finest curb appeal. When buying a home, some steps you’ll go through are:
Getting a mortgage approval
Finding the right agent to work with
Finding a home which fits your budget
Most buyers think if they can afford the mortgage they are ready to buy, but this isn’t the case. New York Insurance Agent David W. Clausen, president of Coastal Insurance states: “Many purchasers know where their mortgage payment will fall but forget to take into account closing costs, title insurance, increase in property taxes and a host of other incidentals.”
Search for rates and find out whether or not you can truly afford that home. Go to bankrate.com to get started.
These are five areas buyers don’t account for, which can cost more than they bargained for.
Homeowner’s insurance, taxes, HOA fees, electric and water bills, and even maintenance dues. Most first time buyers overlook these costs when shopping. Clausen adds, “It is also important to know property taxes and insurance costs typically trend up on a yearly basis.”He further goes on to state if you are possibly going to switch jobs in a couple of years, it might not be the best time to buy. It is best to pick a home only if you can ideally plan on living there at least 5 to 7 years.
Buying doesn’t start when you are looking for a home. It starts with mortgage applications, unless you are one of the lucky few who can afford a cash purchase. Clausen notes how some buyers are afraid of preapproval. As a broker/owner at Coastal Insurance on Long Island, NY he discusses how buyers are afraid of not being approved; so they simply pick a figure out of the sky in hopes of finding a home within that range.
First things first
Clausen says this isn’t how the process should go. Although it is fun to first look at homes, this is the backwards way of doing things. You should first get preapproved then shop; not only does this show you how much you can afford, but also prevents being dejected if you fall in love with a home you can’t afford.
As a new buyer, you need a reputable agent, legal team, loan officer, and broker. Anderson states if you are going in as a first time buyer, it isn’t wise to do it on your own. He further states how first time buyers shouldn’t deal with the listing agent directly, but also notes that every situation has its exception.
He compares this scenario to a divorce. If you are going through a divorce, you wouldn’t go to your ex-spouses attorney, would you? You need a buyer’s agent when buying a home. A listing agent is only going to show you their properties, while a buyer’s agent considers your personal needs.
Find out if you are ready for the mortgage payment, by getting your financial situation checked out
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First you should gather references. You should have friends or relatives lined up to provide a reference. If you don’t have any, ask your broker as well as your agent to provide some, so you go in with a positive outlook when applying for your mortgage.
Clausen adds it is very hard as a first time buyer, since they don’t know who they are dealing with. Clausen further notes how it is important to find an agent who will “truly provide independent, quality advice that benefits the homeowner and not the agent that is looking to make a quick buck.” Clausen also states that this might mean hiring a lawyer when going through the purchase process, simply to ensure the entire process is impartial when buying your first home.
Clausen also notes how many first time buyers spend all or a major portion of their savings for a down payment; this is a detrimental mistake he points out. Many will pull all of their money together to put down that 20% to avoid mortgage insurance. However this is the wrong direction to go and can leave you short on cash for a rainy day.
Depleting your savings is very risky
With a conventional mortgage if you put down 20% you don’t have to pay for insurance on the mortgage. Although this can result in substantial monthly savings, Clausen says it isn’t worth “pushing the preverbial envelope” and not having funds set aside for a potential problem down the road. He says: “I’d pay for the mortgage insurance any day over not having enough money for a family emergency or loss of employment,” and goes on to note that everyone, especially the first time buyer, needs to have those funds set aside.
Prequalification has taken place, you have the perfect home lined up, you’ve signed a contract and close in 30 days. But, don’t get too excited just yet.
Why you should keep the wallet shut for the time being
Prior to closing a financial report including credit check is run, to ensure the financial situation hasn’t changed. If you have new loans on your credit report, this can jeopardize the ability to move forward with the purchase process.
Clausen notes how some buyers sign the contract then go buy a new boat or pricey furniture for the new home. He discusses a situation where a buyer drove to his office and showed him the new boat; Clausen went on to advise him to drive it right back to the dealership that day!
The dealership was kind enough to agree to afford that buyer a few more days, until the final credit check and financial history had been run on the home that buyer was ready to purchase. If this was not the case, it could have killed the deal. So before you get ready to start spending and financing big purchases, make sure you take a step back, and wait until those final checks are run, to avoid the risk of losing everything, only a few days before moving into your dream home.
Compared to selling other types of properties, selling a property in a flood zone is always more difficult. These properties are located in areas that FEMA considers high risk due to their risk of flooding and low elevation. If a property is located in a flood zone, FEMA estimates that there’s a twenty five percent chance that the property will be flooded in a span of the standard three decade mortgage.
Help Your Client Sell Their Home in a Flood Zone
What this means for the buyer is that they’re going to have to pay extra for flood insurance which is generally a bit more costly compared to the standard homeowners insurance policy. Depending on where the property is located, there are cases when finding affordable flood insurance is just not possible. Add to that, the extra costs typically involved in buying a home and purchasing property located in high-risk areas can feel unattainable and overwhelming. As a seller’s agent, buyers need to be fully aware of the specific challenges involved in flood zone houses so they can effectively keep every party involved in the process moving towards the closing table.
Here are some of the most common challenges you and your customers will most likely face when it comes to selling a property in a high risk flooding zone.
Challenges to Selling a Property in a Flood Zone
If you want to sell your property that’s located in a high risk flooding area, the buyers need to consider buying extra flood insurance. This can end up costing them 1000s of dollars per annum, meaning that the cost of owning the property will significantly increase over the years.
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Many banks require buyers to purchase comprehensive flood insurance, which is not only a lot more costly, but also harder to find. Subsidies for the NFIP were reduced in 2012 while insurance rates have increased by up to twenty five percent. What this means is that in the next few years the cost of flood insurance premiums may end up being up to four times higher.
Legislation to bring back subsidies to cushion the cost of premiums has been stalled in Congress, making it very difficult for sellers to estimate how much potential buyers may end up paying for their insurance premium.
The Responsibilities of Sellers for Flood Zone Property Sales
Full disclosure is the main responsibility for sellers who want to sell their property. This information can also be found on the internet and it’s regularly updated. To check the floodplain maps in your area, all you need to do is go to FEMA.gov.
It is highly important that your client’s listing price reflects the extra costs that purchasing flood insurance for the property will create. This is very important if you want to make your client’s property competitive with other properties that aren’t located in a high risk flood zone.
Methods for Selling a Property in a Flood Zone
Even though there are many challenges associated with selling property in a high risk flood zone, that doesn’t mean you cannot sell yours.
Below are the top 4 methods you can use to help your client sell his property, while putting the buyers at ease.
Reduced insurance costs for a year. You can show good faith to potential buyers by offering them a discounted insurance cost for a year from the buying price. Doing so can convince them to purchase the property and help prepare them for next year’s flood insurance premium bill.
Prove to the buyers the risk is minimal. If the area hasn’t been flooded for a year and the sellers never had to pay a claim for flooding, be sure to request a report from the CLUE and show it to potential buyers.
Make the required improvements. In case the property is just a few inches outside of a flood zone, then your client may want to elevate the property outside the floodplain. He can do so by using pilings. Sure, it’s a time consuming and costly process, but if they’re having a hard time selling the property, this method can be well worth it.
Challenge the flood zone designation. If you think that the home shouldn’t be categorized as high risk, then you can instruct your client to appeal through FEMA in order to remove the designation. Decisions can take up to 60 days.
Flood Insurance Rate Changes for 2017 (in Layman’s Terms)
The National Flood Insurance Program has released rate changes for new & renewal policies beginning April 1st, 2017. We’ve put together some bullet points that will help you easily decipher the expected premium changes and what this means for your flood policy. If you are purchasing a home, and have (or will have) a flood insurance policy, here’s what you can expect.
Flood Premium Increases Overview
Flood insurance rates will increase from an average of approximately $830 per policy to $880 per policy in 2017. This represents an average increase of 6.2% for the entire program.
The largest increases of 25% will apply to homeowners that are located in flood zone AE, are Pre-Firm (homes built before 1975) and meet the following criteria:
Non-Primary Residences (Secondary Homes & Rental Properties)
Substantially Damaged Properties- 50% or more of value claimed in a prior loss
Severe Repetitive Loss Properties (SRL)- 4 or more minor flood claims (over $5,000) at one location in 10 years or 2 major flood claims (exceeding value of property) for lifetime.
If your home was built before 1975, has not been substantially improved and fits into one of the four categories above, you can expect rate increases of 25% per year until full rates are reached.
Pre-FIRM (Built before 1975) Primary Residence Flood Zone AE Increases
Generally speaking, If your home was built prior to 1975 and does NOT meet the above 4 criteria, and you’re located in flood zone AE, your premium increases will be limited to 18% but must increase by at least 5% annually.
Flood Zone X
If your property is located in Flood Zone X & you have a Preferred Risk Policy (PRP), like the majority of Long Island New York homeowners that own a house NOT located on the water, you can expect premiums to remain unchanged in 2017.
Standard-Rated Policies- Premiums will increase 2%, with a total increase of 1%
Preferred Risk Policies (PRP’s)- Premiums will remain unchanged
The majority of New York homeowners will experience a premium jump, on average, of approximately 6%, unless your home has been substantially damaged or has experienced multiple losses.
This guide gives a general overview and does not include probation surcharges, FPF, and Congressionally-mandated HFIAA surcharges that are not considered premium and, therefore, are not subject to the premium cap limitations. In some cases, homeowners may experience premium rate increases in excess of the cap limitations of 18%.
Do you own a home that doesn’t fit any criteria listed in this article? Have a flood insurance question? Give us a call (631-782-3175) to speak with one of our New York State licensed flood insurance specialists or fill out our Flood Insurance Form to get competitive rates today.
Insurance is required in order to cover not only your liability to others, but also your personal belongings, your property’s structure and the cost of extra living expenses in the event your property is damaged and you need to live in a hotel until it’s repaired.
It’s important to get adequate insurance in order to cover the cost of having to rebuild your home in case it’s destroyed. Make sure that you don’t base the rebuilding cost on the amount you paid for your property, that the coverage is enough to cover current construction costs and that you do not include the cost of the land.
To calculate exactly how much insurance you require, you should multiply the local building costs by the total square footage of your property. To learn more about how much the builders in your area may charge for rebuilding your home, be sure to get in touch with them as soon as possible. If you want, you can also call your insurance agent or local real estate agent and ask them for some advice in this regard.
Top factors that determine your property’s rebuilding cost:
How Much Homeowners Insurance do I need?
Whether parts of your property or the property itself were custom built.
Arched windows, exterior trim, fireplaces, etc.
Roof type and materials used for it.
Number of rooms and bathrooms.
Your property’s style.
The type of exterior wall your home has.
The structure’s square footage.
Local construction costs.
Changes to your home, such as enlarging the bathroom or adding a second bedroom, etc.
If you already have a typical homeowners insurance policy, then it protects you from disasters like theft, explosions, hail, but also lighting and fire. On the other hand, damage that results due to poor maintenance, earthquakes and floods is not covered.
Liability to others
Depending on your policy, it may also include coverage for property damage or bodily injury, meaning that you are protected from losses in the event your family members, you personally and even your pets, cause damages to other individuals. The policy covers the cost for the damages a court may rule you to pay and the cost of defending you in court as well.
A standard homeowners policy provides at least one hundred thousand dollars worth of liability insurance.
Extra living expenses in the aftermath of disasters
By having a standard homeowners insurance policy, you’re going to be covered for any expenses made towards your relocation and that of anyone living in your home after it was destroyed or made uninhabitable after a disaster. Some of the costs covered include restaurant meals, hotel bills and a wide range of other living expenses.
In general, the amount of extra coverage for living expenses varies from insurer to insurer, but the majority of polices provide about twenty percent of the total amount of insurance you have on your property. If you’re lucky, then you may find that there are certain companies offering unlimited coverage under such circumstances, but only for a certain amount of time. In case one or more rooms of your home were rented out, then this policy will also pay you for loss of income.
Using endorsements/floaters to insure high-value items
There are certain types of items that your insurance policy may cover up until a certain limit (usually one or two thousand dollars) some examples include furs, silverware and jewelry. If you own laptops or computers in general, then some insurers may also place a certain limit on the amount they’re going to pay for them.
For some people, these limits are low, but don’t worry about it, since you can purchase a special endorsement or personal property floater (they come with no deducible). By getting one, you can easily insure your items as a collection or individually. So basically, you’re going to have to pay a premium that’s calculated based on where you live, the item’s dollar amount and item type.
Actual cash value vs. Replacement cost
If your home or belongings are insured for their cash value, then the policy will pay to replace them within the limits of your policy. Depreciation is also going to be factored in the total cost. However, you can also choose to get a replacement cost policy, meaning that you’ll be paid the cost of replacing your belongings or property within the limits of your policy.
Let’s say that you have a TV which is destroyed after it falls off the wall. If your policy is an actual cash value policy, then you’re going to receive a partial payment from the insurer, since your TV is already old and used. If you’ve purchased a replacement cost policy, then the insurer is going to pay you to have your TV replaced with a brand new model.
In terms of cost, the price of a replacement cost coverage policy is approximately 10% higher compared to its counterpart.
Your personal possessions
The majority of standard homeowners insurance policies cover the loss or destruction of your belongings for about fifty to seventy percent of the total insurance you have on the dwelling or structure of your property.
However, it’s recommended that you carefully determine the value of your belongings to see if the policy provides adequate coverage. If you realize that you do indeed require extra coverage, then make sure to get in touch with your insurance agent as soon as possible.
Replacement cost policies may not be available to those owning an older property and therefore they may need to purchase a modified replacement cost policy. However, keep in mind that features typical to older homes are only going to be replaced or repaired using current building techniques and materials.
It’s important to keep in mind that each insurer has its own ways of insuring older properties. So while others refuse to insure the property for its replacement cost, some will do this as long as they deem the home’s condition to fall within their standards.
In the event you aren’t able to insure your home for its replacement cost or the cost of replacing it is very high, then you may be able to replace it with a home of similar size as long as the coverage provided by your insurance policy allows you to.
If your policy has an inflation guard clause, then this helps automatically adjust the property’s limit upon renewing your policy, so that it reflects actual construction costs in your particular area.
It’s very well known that building codes can change fast and without notice. This means that if your property needs to be rebuilt, then it needs to meet the standards imposed by the new building codes. Usually, a guaranteed replacement cost policy and also your typical homeowners insurance policy won’t cover the extra costs associated with the new building codes. However, some insurers may provide a Law or Ordinance endorsement that may cover part of these costs.
Extended replacement or guaranteed cost coverage
In the aftermath of a tornado or a hurricane, the services of construction companies are in high demand. Because of that, they may increase their prices, meaning that your homeowners policy may not be enough to pay for the necessary repairs. To ensure you never find yourself in such an unfortunate situation, you should purchase a policy that pays above the standard caps of your current policy.
By opting for an extended replacement cost policy, you’re generally going to receive up to twenty percent more money compared to your initial policy’s limits. However, if you have a guaranteed replacement cost policy, then the insurer is going to pay you as much as it’s needed to rebuild your home exactly the way it was before disaster struck.
Excess liability or umbrella coverage
If you want to effectively protect your assets, then you should purchase an adequate amount of liability insurance. Some people’s property and/or possessions may be worth more than their policy’s limits, in that case they should purchase an umbrella policy.
This type of coverage provides them with a lot more coverage and they’re usually going to kick in after your liability insurance has been exhausted. Keep in mind that this type of coverage is separate from the standard homeowners insurance policy and as such, it constitutes a separate purchase. On top of providing you with greater coverage, it can also protect you from invasion of privacy, slander and libel. As you may very well know, these are not included in a standard car policy or homeowners policy.
Last but not least, you should know that the cost of your umbrella policy is determined by the type of risk you represent and the amount of underlying insurance you have. If your underlying liability coverage is higher, then you’re going to pay less for the policy. The reason for that is because this way the chances of requiring the extra insurance are low. If you own a vehicle or a home, then the majority of insurers require that you have at least 300 thousand dollars in primary liability coverage.
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