As a resident of Florida, you are not required to purchase a home insurance policy. Your mortgage holder, however, will require insurance on the property, and if you fail to obtain proper coverage and add it as an additional insured, it will likely "force place" coverage for its own protection. Forced place coverage usually provides coverage up to the value of the lien, which leaves you uninsured for any damage to your property and belongings in the home. While some people with no mortgage look at this as a way to save money, most realize it is a risk they should not take.
Buying a home is one of the largest investments you will ever make. For this reason, you want to keep it safe at all times. This means buying a comprehensive insurance policy that can kick in to protect you against a variety of damage.
As you shop for homeowner's insurance, it is important to understand what you are getting in return. While not always the case, most policies provide coverage for the following:
- Structure: this is the home itself.
- Other structures: this may include fences, outbuildings and sheds.
- Personal property: this includes most of the contents you keep in your home.
- Loss of use: also known as additional living expense, it comes into play if you are unable to live in your home for a period of time due to a covered loss.
If you don't have homeowner's insurance, you are on the hook if something bad happens. For example, if your home is damaged in a fire, you are responsible for not only all repairs, but also the cost of the fire department's services and the personal property damaged in your home as well. Even with insurance, unless you have the proper amount of coverage, you may have significant uncovered losses.
Many people make the mistake of insuring their home only for the amount of purchase, or the amount of the outstanding mortgage balance. This likely will not provide you with adequate protection. The cost, or market value, of your home usually has no bearing on the proper amount of insurance coverage you should obtain. Your agent should recommend coverage sufficient to cover the cost of rebuilding your home. While you may buy a home for, as an example, $100,000.00, the cost of rebuilding that home may be significantly higher. Who gets stuck with the difference in the event of a total loss? You do.
Your insurance agent should also evaluate your homeowner's insurance needs annually. As the cost of labor and materials increases, the cost of rebuilding increases as well. In addition, if the loss is significant enough, and if the building code requirements have changed since the home was built, there may be even more costs to rebuild or repair. Accordingly, your agent should also discuss the applicability of Law and Ordinance also sometimes called Code Upgrade coverage with you. This can be very valuable coverage as your home ages.
It is essential to understand not only the benefits of homeowner's insurance coverage, but additional coverages you may want or need as this will help you make a decision as to what coverages you should purchase. The coverage you buy now may save you thousands of dollars and an untold amount of anguish at some point in the future.
Source: Florida Department of Financial Services, Homeowners' Insurance: A Toolkit for Consumers," accessed Dec. 29, 2015