homeowners without mortgages get right to drop windstorm coverage
Article Courtesy of The Sun Sentinel
Published June 18, 2007
Miller's homeowner insurance is so pricey that he's considering dropping
the most expensive portion -- the part that would pay to rebuild his home
if it were destroyed in a hurricane.
Miller, who lives in Oakland Park, isn't sure whether he'll actually go
without windstorm coverage with state-backed Citizens Property Insurance
"I don't have that much nerve," said Miller, 71, a retired chef.
But the 50-year Florida resident is weighing his options given the soaring
cost of living.
Beginning July 1, Miller and other Floridians who don't have mortgages on
their properties will be able to eliminate windstorm coverage as a way to
cut insurance costs under a law passed during January's emergency session
on property insurance.
That same law also allows consumers to jettison coverage to replace the
contents in their homes or condominiums should they be destroyed or
damaged by a hurricane or fire.
The state's intention is to give homeowners flexibility. If windstorm
insurance is too expensive, legislators wanted to let people choose
whether they wanted to keep that coverage. Because lenders require
consumers with mortgages to insure their properties, only people who own
their homes outright would be able to drop windstorm insurance. If people
want to drop coverage for their belongings, they also would have that
There are caveats, though.
Homeowners would have to write personal statements to their insurance
carriers indicating they understand they wouldn't get money to pay for
hurricane repairs. And even though the new law takes effect in July,
consumers won't be able to drop hurricane coverage until it's time to
renew their annual policies.
Also, the exemption isn't just for hurricanes. Homeowners who choose to
forgo windstorm coverage also would be without insurance money to repair
or rebuild their homes should they be damaged by a tropical storm or
destroyed by a tornado.
Though it's likely to be the rare occasion, homeowners carrying mortgages
would be required by law to show written proof their lenders approve
dropping windstorm coverage. An example would be a consumer close to
paying off a mortgage who might be able to persuade a lender not to demand
With many South Florida homeowners seeing annual insurance premiums double
and even triple, going without windstorm coverage is an option that could
prove attractive to those who qualify.
Coverage to repair or rebuild storm-damaged homes typically is the most
expensive part of a homeowner policy -- as much as 90 percent of the cost,
depending on where you live in Florida. Insurance officials warn that
going without windstorm coverage could be costlier to homeowners should a
hurricane hit -- the equivalent of playing `Russian roulette' with their
most valuable asset," said Robert Hartwig, president and chief
economist for the Insurance Information Institute, a nonprofit industry
The 2004 and 2005 hurricane seasons resulted in more than 3 million damage
claims in Florida.
"Those odds suggest that you could really be caught in a financially
precarious situation if you don't maintain the coverage," Hartwig
said. "It's the classic example of being penny-wise and
When crafting the new law, legislators made sure homeowners would
understand the consequences of opting to go without windstorm coverage.
People have to sign a statement each year, acknowledging they're aware
their insurance policies don't include coverage to repair or rebuild their
homes should a disaster hit, said David Foy, chief of staff for the state
Office of Insurance Regulation.
"We want to make sure the consumers are fully aware of the decisions
they're making," Foy said. " ... We want to make sure that
policy holders at the end of the day, if a hurricane does come, that they
have a way to repair their [homes]."
More homeowners might be willing to change or eliminate coverage on their
home's contents, however. Foy said the insurance department fields
numerous inquiries from people questioning why they must carry a certain
amount of fire and theft coverage on their home's contents, or why they
need to have the coverage at all.
Some insurance companies base a homeowner's contents coverage on a
percentage of what it costs to rebuild the home, while others set a flat
rate, Foy said. So homeowners may be paying much more than they need to
replace their furniture and other belongings.
Even with a detailed consent form, consumers must be cautious, said Robert
Hunter, director of insurance for the Consumer Federation of America.
Insurance policies can be difficult for consumers to understand, and too
often people don't carefully read their policies. If people decide to go
without coverage, they need to take time to understand exactly what
they're losing and not rely on others to translate for them.
"When confronted with an insurance question, people have a strange
combination of fear and boredom," Hunter said. "They basically
just trust people to lead them properly through this maze."