Why Is Homeowners Insurance in Florida So Expensive?
Homeowners in Florida pay a high price for insurance. The obvious reason for this is that Florida frequently bears the brunt of destructive hurricanes. More hurricanes hit Florida than any other state. In a period of just two years (2004 to 2005), the state was struck by five major hurricanes (category 3 or higher).
Insurance companies base their rates on the history of claims in a given area. They use this information to estimate the amount of money they will need to pay future claims. Insurance rates are higher in places that have a history of producing a large number of expensive claims. Florida is one of those places.
Some insurance companies have cut back on the number of policies they are willing to sell to Florida homeowners, especially in counties that have a history of serious storm damage. This has reduced competition and allowed companies to raise their rates even more. In this environment, homeowners are bound to pay high rates for insurance, but it still pays to shop around for the best deal.
Rising rates have had a particularly strong impact on Florida homeowners who have policies that cover full replacement costs. This type of policy covers the full cost of replacing your home if it is damaged beyond repair. As the price of replacing a home in a given area goes up, insurance companies raise the rates for policies that cover full replacement. Until recently, replacement costs in Florida went up steadily from year to year, and premiums for this type of policy went up along with them.
Some Florida homeowners also pay high premiums because they have a type of policy called Extended Replacement Cost Coverage. Here's how it works. After a major hurricane, building materials can be difficult to come by, and their cost usually goes up dramatically. Construction workers and qualified contractors are also in great demand, and therefore they are able to charge more for their services. So the cost of replacing your home after a hurricane can be much higher than it would be under normal circumstances.
Extended Replacement Cost Coverage takes this higher cost into account. Depending upon your policy, your company may pay as much as 20% more than normal replacement costs if your home is destroyed in a hurricane. Many homeowners believe this extra coverage is worthwhile, so they are willing to pay a higher premium for it.
Many Florida homeowners also have separate flood insurance policies. A standard homeowners policy does not cover flood damage. This includes damage caused by the storm surge from a hurricane. Homeowners typically buy flood insurance from the federal government through the National Flood Insurance Program.
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