Bigger waterfront homes, bigger insurance

Castles in the Sand

Have you forgotten the collapse of the condo in Surfside, Florida yet? Those of us who live on the water in Florida may never get over it, it will just keep coming back like a bad dream. The good thing is the unfortunate collapse of the building and the death of so many residents appears to be more unique to the building’s construction and maintenance than many first thought. Nevertheless, living on barrier islands with direct ocean and Gulf exposures leaves you vulnerable in many other ways.

Last week I talked about the changes being made by the Federal Emergency Management Agency (FEMA) to the federal National Flood Insurance Program they manage. The program went into effect on Oct. 1 and will start to impact homeowners who have flood insurance through the government’s National Flood Insurance Program as their renewals come due. But there are a lot of moving parts to flood insurance, especially for high-end waterfront homes.

First of all, if you are part of FEMA’s National Flood Insurance Program, your coverage is a maximum of $250,000 in damages. FEMA does make additional funds available if a disaster is declared, which is one reason why governors of states quickly declare disasters after significant storms in order to help individual property owners as well as make states eligible for funds in a declared disaster situation.

Of course, $250,000 is not a lot of money to repair damage from a storm in a property worth over $1 million, which almost all waterfront properties in Florida are valued at. The answer is to purchase excess flood insurance coverage. As waterfront property values increase, there is a growing sector of private insurers who are filling the gap with a variety of policies. These policies could be a supplement to homeowner’s policies or could stand alone. They could be combined with the National Flood Insurance Program policy, which also offers excess flood insurance coverage. However you structure the insurance you need to meet your lender’s flood insurance requirements as well as protecting your home and investment should be reviewed with a flood insurance professional.

In addition, private flood insurance policies can go beyond what’s covered under the National Flood Insurance Program’s coverage. This might include reimbursing you for loss of income, additional living expenses coverage and even the costs of flood prevention, such as sandbags. All of the coverages available vary by the insurer, as do the rates, so purchasing excess flood insurance coverage is an important part of waterfront living and needs to be addressed with a competent insurance broker who is a specialist in flood insurance, particularly on expensive barrier islands and other waterfront regions.

Another caveat is to determine the true replacement cost for your property. Costly high-end finishes may be difficult to put a value on after a storm. Homeowners should document every detail of the home that could be in dispute if it became a total loss. Pictures and videos created before an event will become valuable when the insurance adjuster shows up.

Just to add to your stress a little more, the First Street Foundation, a nonprofit that advocates for more transparency in flood risk and climate change, predicts the following: In the next 30 years, economic damage due to changing environmental conditions is estimated to jump to 7.5 times the current average insurance payout, up from 4.5 times.

You can’t dwell on things you can’t change, like a once-in-a-lifetime building collapse, but you can prepare for your own individual circumstance. Know what you need and get the best possible advice to protect your home and family because no one wants to move inland.