Purchasing a home on or near the coastline is a dream for many—the chance to walk to the beach, or hear the ocean and smell the salt in the air would make each day feel like it is tinged with vacation vibes.
If you’re looking for that dream home on the coast, be aware that securing homeowners insurance coverage could be difficult. There are widespread reports of insurers pulling back from covering high-risk areas, including coastline properties. In some instances, insurance companies are no longer offering coverage to entire zip codes, and even pulling completely out of some markets.
If you’ve always wanted to own a home in a coastal area, it’s important to understand how your homeowners insurance might be affected by where you choose to purchase.
What are the best insurance options for a coastal home?
The types of insurance that will be available for a coastal home may vary, due to state regulations and requirements. This is particularly true in hurricane-prone regions along the coast.
In some areas, insurance companies may offer to cover your home with a specific type of policy designed to protect homes near large bodies of water, called coastal insurance.
Coastal insurance is designed to protect against common risks associated with properties located near coastlines, such as windstorms, hurricanes, and water damage. It may include coverage for things like debris cleanup after storms, and protection for damage caused by erosion.
Because major nationwide insurance companies are pulling back on covering high-risk areas due to large losses in recent years, some homeowners are finding local insurers may be more likely to consider covering coastal homes.
In Florida, the problem has become so acute that more and more homeowners are discovering that the state-established pool, Fair Access to Insurance Requirements (FAIR), is their only available option to secure insurance. FAIR is now Florida’s largest insurer, so homeowners considering a coastal home purchase in Florida may need to look into this option, even though state-run pools frequently offer less coverage than private insurers.
Many, but not all, coastal states have some form of an “insurer of last resort” pool.
How do a coastal coverage policy and a regular homeowners insurance policy differ?
The main difference between a standard homeowners insurance policy and a coastal home insurance policy is how the deductible is handled and calculated.
Deductibles are the amount a homeowner is responsible for covering before an insurance claim kicks in. If a home has $10,000 of damage from a covered peril with a deductible of $2,000, the homeowner covers the first $2,000 of the repairs and the insurance claim pays the remaining $8,000.
A coastal insurance policy will likely have multiple deductibles that are tied to specific covered perils. For example, a coastal policy may have separate deductibles for windstorms, named storms, and hurricanes. This means that the amount you are responsible for covering—your deductible—may vary depending on which state you live in and the type and severity of the storm.
Coastal insurance policy deductibles are typically calculated as a percentage of coverage, rather than a flat amount. For instance, a hurricane deductible may be represented as a percentage of your coverage limit—so, 3% on dwelling coverage of $500,000 means that your hurricane deductible is $15,000.
Your coastal insurance policy may include separate deductibles for windstorms and named storms.
The materials used to build your home, and protective measures such as reinforced foundations or lifting a home or adding hurricane shutters, may help to lower premiums.
How does proximity to the coast affect home insurance rates?
Proximity to the coast will have a substantial effect on home insurance premiums.
Because the risks are so much higher, the closer a property is to the coast, the more homeowners insurance will cost. If you are interested in purchasing a home on or near the coast, you can expect to pay more for your homeowners insurance premiums than you would on a similar property located farther inland.
As noted earlier, because the risks are so great, some insurers are no longer offering coverage to homes on coastlines.
Primary residence, or vacation home?
Your insurance options and premium costs might also be impacted by how you plan to use your coastal home, and whether it is a vacation home or your primary residence.
Vacation, or seasonal homes, typically cost more to insure because homes that are vacant for stretches of time pose a higher risk for claims. This can include a higher risk for theft, because the home is empty, making it attractive for burglars.
Homes that are only occupied part-time are also considered risky as something like a burst pipe may go unnoticed, possibly for an extended period, resulting in more damage and much higher repair costs.
Is flood insurance mandatory for coastal properties?
Notably, just like standard homeowners insurance policies, coastal insurance usually does not cover flooding. Homeowners will need to purchase a separate flood insurance policy to protect their homes against damage caused by flood waters.
Flood insurance is required for any coastal property that carries a federally backed mortgage, such as an FHA loan or a VA loan. Private mortgage lenders may also require a homeowner to carry flood insurance on a home that may be susceptible to flooding, which would include coastal areas.
Because flooding can happen anywhere, even if your home is somewhat inland from the coast, you might want to consider purchasing flood insurance to protect your home.
If you are interested in learning more about homeowners insurance on a coastal property, contact the experts at Rate Insurance. Coastal insurance policies can be complex, and it is important to understand exactly what a policy does and does not cover, including all of the different types of deductibles. With access to top insurers, they can help you find the coverage you need for your home on the coast.
Disclaimer:
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