|
There is no legal requirement for the owner of a house to have insurance on his or her property. Banks and mortgage companies invariably have a contractual stipulation that homeowners carry insurance, but that is a contractual agreement, not a legal requirement. Nonetheless, homeowner’s insurance is a necessity, especially in a vulnerable
environment like the Outer Banks, and it is the rare homeowner, indeed, who does not recognize that.
There are two types of insurance available to homeowners on the Outer Banks: HO3 and DP2. Both are designed specifically for homeowners but have very different applications depending on circumstances.
An HO3 policy is the most common policy written today. It is generally used to cover a home that is a primary dwelling, and it offers a fairly inclusive list of protection against perils. An HO3 policy also insures the homeowner against liability claims and covers loss of personal property that is included in the hazards covered by the policy.
A DP2 policy is tailored to the rental market. It is a policy that is generally written for second homes that are in a rental program, although some older homes may qualify to be covered under a DP2. In covering property damage and structural damage it is very similar to an HO3 policy; however, it does not cover liability claims or loss of personal property.
Take note: Neither an HO3 nor a DP2 policy offers flood insurance or protection against wind and hail.
Every insurance agent interviewed for this article stressed that flood insurance is a must on the Outer Banks. Even homes that are not in what is considered a flood-prone area should be covered by flood insurance.
Wind and hail coverage is often thought to be included on a homeowner’s policy. They are not, and, in fact, the danger of damage from wind is considered so great along the Outer Banks that wind and hail insurance is specially covered by the Beach Plan, a part of
the North Carolina Joint Underwriters Association (NCJUA).
Because the Beach Plan is covered under NCJUA guidelines, it is not offered in any other form or from any other entity. If a homeowner chooses to purchase wind and hail insurance, the premium will be the same whether offered by agent A, B, or C.
Because a DP2 policy is not as inclusive as an HO3, the premiums tend to be less expensive. However, a DP2 is not recommended for a primary home. In order to get the same level of protection from liability and loss of personal property that an HO3 offers, riders (additional policies) would have to be written, which will usually make the DP2 more expensive.
An HO3 policy cannot be used for any house that is rented more than 25 weeks per year. As an example, if your beach house is a second home that is used for family members and rented perhaps 10 weeks per year, you could cover it under an HO3 policy.
A house that is a year-round rental, or is rented on a weekly basis for 40 weeks every year, can only be covered by a DP2. A home that is a year-round rental probably does not need a personal property rider. Most families (or individuals) who rent a home as a residence have their own personal possessions in the house and the homeowner is not liable for their belongings.
Homeowners who are using their beach house (or houses) for rental income might want to give considerable thought to purchasing a personal property rider. Because the furnishings,
carpeting and amenities that are not part of the actual structure represent a considerable investment, it may make sense to insure them.
Policies may be written as either cash value or replacement value, although HO3 policies always replace homes at the cost of replacement. Personal property, however, may be replaced at either cash value or replacement cost. Cash value is just that – you will be reimbursed for the actual amount that you paid for a product, minus any deductibles that may apply to your policy. Replacement cost is the actual cost to replace the product.
For example, let’s say there is a fire in your recreation room and the wide-screen TV you purchased for $4,000 five years ago is destroyed. If you have a replacement cost policy, you will be paid considerably less than the original purchase price since the cost of wide screen TVs has dropped dramatically. If the only thing you were replacing was that television, you would benefit more from a cash value policy.
Fires are never a neat thing, though, and it is probable that all of the furniture in the recreation room has also been destroyed. Because the price of furniture has risen since you furnished the room, replacement cost would be more to your advantage in this case.
There are ways to save money on homeowner’s insurance. Raising your deductible may help, and some companies offer discounts if you package all of your personal insurance needs through them, including the homeowner’s insurance, auto insurance, boat insurance, etc.
Ultimately, however, the decisions that are made about how much to spend, why and how are personal choices. That is why an agent is so much a part of the homeowner’s policy. A good agent can help an owner decide what is right for them. An agent will help you avoid buying too much insurance, in which case you will never be able to take full advantage of all the benefits for which you have paid. Or, a good agent can help make sure that your home is not under-insured, which is more often the case than being over-insured, so that you are never left unable to pay for repairs and losses if something does happen. |
