Living in a coastal southern or eastern state means paying attention to the Weather Channel from June 1 through November 30. Everyone knows that is hurricane season, and it has proven to be devastating from Texas, Florida, North Carolina, Virginia, to New York. On top of that, it is also peak home buying season! Most recently, Hurricane Florence created a slow path of flooding and destruction. Next, the 2017 season included Hurricanes Harvey, Irma, and Maria. In 2016, hurricane season included Hurricane Matthew. All of these not only affected homeowners, but it also drastically altered the housing market. At minimum, they delayed closings.
With a housing shortage and a predicted average to above average hurricane season, could 2019 be the perfect storm? Let’s hope not, but just in case, let’s discuss buyer and seller insurance tips to protect against a catastrophic loss.
Hurricane Season Insurance Tips for Sellers
Selling a home during hurricane season makes sellers feel stressed and helpless. Although, there are steps that can decrease the chances of financial loss.
- Review all insurance policies with your agent
- Consider flood insurance (even if not in a flood hazard area)
- Keep all policies in place through the recording of a deed
Insurance Policy Review
No matter the type of insurance, consistent review of the policy, what it insures, and the policy holder’s current life stage are key. Therefore, making sure that it is not only in effect but that it also provides sufficient protection. How much and which type of protection is dependent on so much. Additionally, the cost to build a home increases and the cost could exceed the policy coverage limits. Which is why it is key to have at least annual meetings with an agent. For those in hurricane-prone areas, before the season starts is a good idea. Some are not aware of this, but once a named storm approaches, new coverage is not available. Let’s say your home is under contract to sell and a hurricane is near. Getting a flood policy may make sense, but once the storm is within the so called “window,” insurance companies cannot bind coverage.
Consider Flood Insurance
It is obvious that homes in a designated flood hazard area should have flood insurance. Actually, lenders will require flood insurance as well as sufficient coverage to rebuild or cover the loan balance. Should homeowners consider flood insurance when the property is not in a flood hazard area? Maybe! Recent hurricanes have shown that 25% or more of the flood damage claims are for homes outside the 100 year flood plain. In these cases, homeowners with a mortgage are not required to carry flood coverage. When a home is typically the largest financial asset of an American household, it certainly makes sense to consider the coverage.
Flood insurance for homes outside the higher risk flood plain is actually very cheap. Why? Statistics! The lower the chance of flood, death, crime, the lower the price of insurance. A homeowner or seller could be surprised of the flood insurance premium and may find that the lower cost is worth the peace of mind.
Keep Insurance in Place While Selling
Finally, sellers should never cancel any insurance policies until the deed has definitely been transferred into the buyer’s name! Yes, the chances are very low of something happening during that small window from closing to recording the deed. Just think, if the seller cancels insurance and the buyer’s insurance probably will not cover damages until the home is in the buyer’s name. During hurricane season, the results could be catastrophic to both parties.
7 Hurricane Insurance Tips for Buyers
Buying a home includes many decisions and we are discussing the insurance decisions. Buyers are obtaining a huge asset and often a debt to go along with it. So, insuring the property and covering the debt are not just required by the lender but should be taken very seriously by the buyer. When buying a home, there are important tips to remember:
- Choose an experienced insurance agent up-front
- Obtain quotes prior to contract
- Don’t just go with the cheapest quote
- Watch for tropical storm and hurricane warnings
- Consider binding insurance early
- Don’t procrastinate
- Perform a walk through right before closing
Choose an Insurance Agent Early
Do your homework and discuss insurance coverage, exclusions, and premiums early. Even if there isn’t a property chosen yet, get educated on the process, terms, and products. As mentioned, consider flood insurance even if not in a high risk area. An insurance agent can discuss this and all other insurance related areas. Also, one of the most common delays just before closing is waiting on the insurance binder. Typically, the reason is waiting until the last second to decide on coverage or even tell the agent about the purchase. Don’t be that buyer!
Obtain Insurance Quote Prior to Contract
Why do this? Knowing the costs up-front could make or break a purchase. The insurance premium(s) are part of a housing and closing expense. So, it will effect the mortgage payment and the cash to close. Depending on the area and the property, the insurance cost could vary widely. For example, there have been buyers who find that a particular home requires $8,000 per year in flood insurance when it was only expected to be about $1,500. That is a major factor in making a decision! Therefore, know your numbers up-front!
Don’t Just Go With the Cheapest Quote
Of course, the premium and payment are very important, but do not sacrifice coverage for a super discounted premium. If a buyer cannot easily afford to pay an insurance claim shortage, why pay for coverage that won’t rebuild the home adequately? Foremost, make sure the property is covered against perils with a quality company and then get the premium as affordable as you can.
Buyers, Watch for Tropical Storm and Hurricane Warnings
Buyers beware when a named storm is approaching and it isn’t just because of damage. Once a named storm is within “The Box” insurance companies will not bind or increase insurance coverage. Just like we have discussed risk in this article, insurance companies base everything on risk. So, with an imminent storm during hurricane season, insurance companies know the risk is much increased. Thus, no insurance will be written until the property is out of the box. So, buyers need to be proactive and know the options, potential issues, and process early.
Consider Binding Insurance Early
Perform a Walk Through Prior to Closing!
You have made it through the purchase process and all you have to do is sign the paperwork. There is all kinds of excitement going on and a lot of distractions, but don’t let all of this distract you from the walk through. Just before closing, it is so important to check the home out again because there are so many things that could happen. We have seen break-ins, broken water lines damaging the home, flooding, and more. Once the home is yours, there are usually not many options for a remedy. Make sure you or at least your buyer’s agent checks it out thoroughly before signing the papers.
Ready to begin the home buying journey? Contact your OVM Financial loan officer.