Living on one of the country’s many coasts comes with its own unique set of circumstances and weather patterns. Hurricanes, tropical storms, and other adverse weather conditions are very real threats to a home along the water. Typically, coastal homeowners will need more comprehensive home insurance coverage than what is normally offered under a standard home insurance policy. Coastal home insurance provides coverage to these “beach” homes that are at higher risk of obtaining storm damage.
- Coastal home insurance typically provides more comprehensive coverage to a homeowner than a standard home insurance policy by providing extended or guaranteed replacement cost, open peril, and other coverage
- Coastal home insurance policies can be quite expensive and usually have special deductibles when a home is damaged by wind, hurricane, or other coastal weather
- A homeowner on the coast may still need to purchase additional standalone policies such as flood and windstorm insurance to be adequately protected
What is coastal home insurance?
Coastal home insurance, which is sometimes known as beach house insurance, is similar to a standard home insurance policy but usually provides more encompassing coverage to the homeowner. The coastal policies come with greater replacement cost coverage than your standard HO-3 homeowners policy and open peril coverage that includes severe storms. This insurance is designed to protect those homes along the coasts of this country that are at a greater risk of sustaining wind and water damage as the result of a hurricane, tropical storm, or other severe storms.
Most standard home insurance policies will limit coverage for damage caused by weather events such as a hurricane. Insurers may even exclude coverage for these storms altogether. Coastal home insurance is typically provided by insurers who specialize in this type of coverage. These insurers can be much harder to find than insurance companies providing standard home insurance.
How is coastal home insurance different from standard homeowners insurance?
Standard homeowners policies generally provide coverage to the dwelling and other structures on a replacement cost basis meaning that the insurance provider will reimburse the homeowner for repair costs for covered damage, up to the amount in the policy that was stated as the dollar amount it would take to replace the home. Importantly, replacement cost coverage does not factor in depreciation over time. This means that if the original coverage limit stated in the policy was $300,000 and damage occurs ten years later, the homeowner will still provide the homeowner with $300,000.
Under a coastal home insurance policy, coverage for the dwelling and other structures is typically provided to the homeowner on an extended replacement cost or guaranteed replacement cost basis. This means that the insurance company will reimburse the homeowner for up to an amount greater than the amount originally determined to be the replacement cost of the home. Extended replacement cost typically equates to a maximum coverage limit that is 125 to 150% of the replacement cost and guaranteed replacement cost will provide reimbursement for the total amount it takes to rebuild the home regardless of how high the number is. For example, under extended replacement cost coverage at 150%, damage that occurs to the home will be reimbursed to the homeowner up to $450,000, and under guaranteed replacement cost coverage will be reimbursed to as high as the dollar amount happens to be.
Standard home insurance typically provides protection for personal property on an actual cash value basis which means that depreciation in the value of the items is factored in over time, reducing the maximum coverage limit as time goes on. Coastal home insurance normally provides the homeowner with replacement cost coverage for their personal belongings.
Another difference between the two policies is that standard policies typically only have one deductible, which usually is anywhere from $500 to $2,500. Under a coastal policy, there are normally multiple deductibles that differ depending on the peril that caused the damage. In most cases, these deductibles are a percentage of the dwelling coverage limit, ranging from 1 to 10%. For example, if the dwelling coverage limit is $300,000, the various deductible on the policy may range from $3,000 to $30,000.
Coastal home insurance deductibles
As explained above, coastal homeowners policies normally have multiple deductibles that are different depending on what peril caused the damage. There are three common deductibles:
- Windstorm deductibles are the most common of the three to kick in as it is for any sort of wind or hail damage.
- A hurricane deductible will kick in when the National Weather Service or National Hurricane Center reports winds of 74 mph or greater.
- Finally, the named storm deductible will kick in when a tropical storm is declared by the National Weather Service or National Hurricane Center.
These various deductibles can range from 1 to 10% of the dwelling coverage limit, although each state has different laws regarding how high of a percentage an insurance provider can charge and when the deductibles kick in.
Some coasts of the country are far more susceptible to severe weather damage than others, therefore, coverage can vary wildly from location to location. The cost from location to location can be dramatically different as well. Make sure to talk with your insurance agent to determine what deductibles are contained in your coastal home insurance policy and what you are or are not covered for.
Living in a coastal area without a coastal home insurance policy
If you live in a coastal area and don’t have a coastal home insurance policy, there are two additional coverages you may want to consider.
- Flood insurance: first you should consider flood insurance. Flooding is something that is almost always excluded from a standard home insurance policy. This is an extremely common and costly peril, especially in coastal areas. While not legally required, some mortgage lenders in high-risk flood areas may actually require you to purchase flood insurance in order to receive the mortgage loan. Typically flood insurance is purchased through the National Flood Insurance Program, but can sometimes be purchased through a private insurer.
- Windstorm insurance: the second additional coverage to consider is windstorm insurance. While wind and hail damage is usually included in a standard homeowners policy, many insurers will exclude wind and hail damage in areas that are at high risk for that sort of damage, which in many cases are coastal areas. If windstorm damage is excluded from your policy and you are living on the coast you would be encouraged to look into a windstorm insurance policy.
Windstorm insurance
Wind and hail damage is typically excluded by insurance providers in areas that are at high risk for that damage, which typically includes the coastal areas of the country. Luckily, in most cases, windstorm insurance can be added to a policy for an additional premium fee or can be purchased as a separate policy. For those in coastal areas, this is a coverage that is highly recommended to look into.
Windstorm insurance typically includes a deductible that is based on a percentage of the dwelling coverage limit. Windstorm insurance acts in a similar way to a standard home insurance policy in that there is dwelling, other structures, personal property, loss of rent, and loss of use coverage.
Some mortgage lenders may require windstorm insurance to receive the mortgage if you are in a wind-prone area. Windstorm insurance can be quite expensive, sometimes costing just as much as the home insurance policy itself. The average cost of windstorm insurance is just under the average cost of a standard home insurance policy.
What to do when a coastal homeowners insurance policy cannot be found?
Coastal home insurance is far less prevalent than standard home insurance policies. It can be difficult for a homeowner living on the coast to find. Many states have what is called the FAIR plan, which is a state-level program that is funded by private insurers. Policies can be found here for homeowners in high-risk areas that can’t find private insurance. The policies are typically more expensive and provide less coverage to the homeowner than a normal coastal insurance policy, but they will provide some coverage to the homeowner at least. There are 30 states that currently offer a FAIR plan:
- California
- Connecticut
- Delaware
- Florida
- Georgia
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- New Jersey
- New Mexico
- New York
- North Carolina
- Ohio
- Oregon
- Pennsylvania
- Rhode Island
- Texas
- Virginia
- Washington
- Washington D.C.
- West Virginia
- Wisconsin
What is the cost of coastal home insurance?
Coastal home insurance can be quite expensive. The average cost of a standard home insurance policy is about $1,900 per year with the average coastal home insurance policy being over $2,000 per year. The important thing to keep in mind is that hurricanes and other severe weather events can cause massively expensive damage that will far outweigh the premium cost.
Summary
Coastal home insurance is a more comprehensive form of a standard home insurance policy, providing greater protection to the homeowner who lives in a high-risk area for hurricanes, tropical storms, and other severe weather. While typically a more expensive coverage, it is important coverage for homeowners on the coast to consider. Many insurers in high-risk areas will exclude common perils such as wind and hail from their coverage, leaving the homeowner exposed.
