Once you have begun your journey to purchase property on the Outer Banks, you should research insurance coverage once you have an offer accepted. While most of the time it is not difficult to obtain insurance, policies and options vary and you will want to get the best coverage for you and your circumstances.
Most Outer Banks homes have 3 policies in place; homeowners, windstorm/hail and flood insurance. While flood insurance is not required in all cases, our coastal location makes it a good idea. Our prior post, discussed the different types of insurance, hurricane coverage and coverage for owner occupied homes and vacation rentals.
Our comprehensive post on Flood Insurance goes into detail about the risk of flooding and reading and interpreting the local flood maps. Flood insurance cost is subsidized by the Federal Government and is highly recommended and affordable even for those properties where the lender does not require coverage. In COBRA zones, the insurance is not subsidized and will be more expensive from a private insurer. Be sure to ask your Eillu Agent if the home you are considering is in the COBRA zone.
The insurance coverage and policy type selected will depend on if you are occupying the home, using it as a second home (rented less than 25 weeks a year) or as an investment property. Discussing your options with an Insurance Agent and getting multiple quotes is the best way to secure the best coverage for you and your circumstances.
Location, Location, Location
The location of the home you are purchasing will have a major impact on the cost and type of policy available. Waterfront locations are generally more costly to insure but the elevation of the lot is an important factor to the final cost.
The community you select will impact your flood insurance rates. Some communities participate in a voluntary incentive program for floodplain management (Community Rating System) that exceed Nation Flood Insurance Program requirement and provide a discount to properties within the community.
Proximity and rating of the local fire department and even the distance to the nearest fire hydrant will also affect the cost.
Consider adding an umbrella liability coverage to your insurance portfolio. While the “HO” policy forms include some liability coverage, a pool or hot tub at your home increases the risk of injury where you could be found liable. A “hazard” only policy for fire, wind, smoke that is commonly used to cover investment properties does not include liability coverage. Umbrella coverage will plug this gap.
The insurance industry tracks and shares the claim history of individual properties in the CLUE (Comprehensive Loss Underwriting Exchange) database.
The CLUE report shows any claims in the prior 7 years and could be indicative of hidden damage, due to mold from flood damage for example, or reveal a higher cost to insure the property.
Home sellers should provide a copy of the report for disclosure to potential buyers to show no adverse claims on the property. The prior claim history of a property will impact the cost to insure the property even though you did not own the property at the time of the claim.
Insured Amounts & Deductible
The insurance for a property should not include the value of the land; only the buildings or improvements upon it. A catastrophic event will not destroy the land so there is no reason to pay a higher premium for coverage that will not be used. Insurance does not provide coverage for erosion.
Some insurers are inflating the insured value of houses, saying they would cost more to rebuild, thus raising the total bill each year without raising rates.
“We’ve had insurers applying a 10 percent to 12 percent inflation factor every year to dwelling value,” said Willo Kelly, who lobbies for real estate agents and homebuilders on North Carolina’s Outer Banks. “Every increase that company applies to dwelling value is an increase in the premium, an increase in the deductible and an increase in the agent’s commission.”
Be sure to obtain quotes for policies with a “higher” deductible and compare the cost of policies among providers that have the same limits and deductible. This ensures you are making an “apple to apple” comparison. Also, make sure the higher deductible policy is acceptable to the mortgage company before purchasing the policy.
A policy with a higher deductible can save a lot of money over the period of ownership. You will also want to make sure you have enough liquid reserves to cover the deductible in the event of a loss. A higher deductible policy is priced favorable by the insurers; insurers know only large claims are likely to be submitted under these policies.
Repair & Rebuilding After Damage
Homes with damage of less than 50% of the buildings market value just before the storm or event that caused the damage can repair the damage at the original location. If the damage exceeds 50% of the value before the event then all current building code requirements must be met. This could include setback requirements, floodplain regulations and all other current building regulations. For this reason, buyers should determine if a property under consideration meets current setback rules or if the structure has been grandfathered.
From seasoned veteran to first time home buyer, Eillu is here to help you navigate the home buying process. With over two decades of experience in the Outer Banks market, we have experience with the issues coastal properties may face; we can help you with any questions and guide you every step of the way for a smooth buying experience. Our exclusive buyers rebate will save you money without sacrificing service. Schedule an appointment with an Eillu Agent today.