Cash-strapped homeowners without mortgages get right to drop windstorm coverage

Article Courtesy of The Sun Sentinel

By Kathy Bushouse
Published June 18, 2007


Louis 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 Corp.

"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 option.

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 the coverage.

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 group.

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 pound-foolish."

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."