Owning a beach house is easier to achieve with available mortgage products. It represents the culmination of the American dream where the owner has the flexibility to travel to the vacation home as and when desired.
Beach house insurance is an essential precaution for the owner of a beach house. Due to the increased risks, the premium rate for this cover will be higher than for an inland home; however, this is justified when considering the potential for storm and wind-related damage.
Suppose you apply for funding assistance for a seaside property from a bank. In that case, the loan will almost certainly only be granted if an adequate insurance policy which, at the bare minimum, covers flood and wind damage. Beach houses are exposed to more severe risks than inland properties, and as such, you should carefully consider the insurance protection you need to purchase.
Beach Homes Should Be Insured With A Specialised Policy
The primary tenant of insurance is the good fortunes of the many pay for the losses of the few. Simplistically, insurance companies are a big pot which people pay a premium into, and this is withdrawn from when “the few” experience a loss.
When the value of claims exceeds the value of the premiums paid into the “pot,” the insurance company runs at a loss.
Insurance companies alleviate this situation by using reinsurance; however, the only way to reverse the loss is by increasing the premium contributions from the rest of the policyholders.
Insurers try to segment the policy base into similar (homogenous) risk groups. Policyholders with identical risk profiles pay the appropriate premium without subsidizing policyholders with different risks.
It is a detailed explanation detailing why standard homeowners’ insurance policies may not provide the full extent of cover needed to cover the risk associated with a beach home.
Standard Homeowner Insurance Covers The Following
The standard homeowner’s insurance policies cover the main risk events, such as.
- Damage by fire includes teardown, rubble removal, and rebuilding costs for the main structure and outbuildings.
- Damage to the home following an impact- for example, a tree branch falling and damaging the building.
- Damage to the buildings caused by theft.
- Damage to the roof is caused by storms or hail.
- Damage caused to the home by a burst pipe if the damage is not a result of improper or insufficient maintenance.
- Some insurance policies have third-party liability coverage that pays compensation for injury to non-occupants caused by the policyholder or animals.
- The policies would cover the foundations of the building if the damage were covered by an insured peril (fires, storm, etc.)
Standard Homeowner Insurance Does Not Cover The Following
Although most insurance companies impose their unique exclusions, the following perils are not covered by a standard Homeowner Insurance policy.
- Flood Damage is almost always a homeowner’s exclusion.
- Damage caused by earth movement is a standard homeowner insurance exclusion.
- Maintenance which includes repairing appliances or updating the building, plumbing, or electrical systems, is excluded from standard homeowners’ insurance.
- Removing mold is not covered unless caused by an insured peril, such as a storm.
What Additional Risks Endanger Beach Houses?
Many insurers consider coastal homes to be a higher risk than traditional inland buildings.
The risks that worry insurers include.
Beach Houses May Be Unoccupied For Large Periods
Unoccupied homes represent a higher risk than those which are permanently occupied.
The Risk Of Burglary Is Increased
Being unoccupied makes them more exposed to burglary and theft.
Burglars look for “soft” targets, and an unoccupied beach house is the very definition of this.
The Potential Of Vandalism Is Increased
Unoccupied Beach houses stand a risk of theft or vandalism may be higher.
Minor Damage Can Become Major Damage
Not having a watchful eye over the premises means that a low-risk situation can change into significant damage without anyone being aware.
An example would be leaking hot water geyser would be noticed and repaired by an occupant, whereas not being attended to may ultimately burst and cause water damage.
Beach Houses Are Exposed To The Risk Of Flooding
The risk of flooding in a beach house is significantly higher than in a home situated inland.
It is not only from the beach house being exposed to flooding from the sea but also a greater risk of pipes suffering from corrosion and bursting.
Beach Houses Are At Risk Of Storm Damage
Beach homes are very exposed to damage from heavy storms which may come in from the sea.
Hurricanes Make Headlines When They Damage Beach Houses
Watching homes destroyed during major hurricane events is both alarming and tragic.
Hurricanes threaten beach homes in four ways.
Hurricanes Force A Change In To Beach Homes Pressures
One of the most extreme dangers of hurricanes is the differential pressures that cause the building structures, including roofs and walls, to collapse inwards.
Differential pressures are caused by high-speed wind, causing high-pressure zones on the front of a building and a low-pressure area on the reverse side.
The pressure differentials can deform or dislodge roofs, collapse walls, and other building structural components. When the resistance capabilities of the members are exceeded, a failure will result.
It can cause levels of damage ranging from superficial to extreme. Roof shingles or tiles can be broken or lifted off in this manner to become wind-borne debris.
Wall sidings, windows, skylights, doors, etc., can be damaged similarly. Even plywood roof panels or the entire roof structure can be uplifted and transported, though this typically only occurs at higher wind speeds.
With a roof gone, the walls of a building are much easier to be blown down by a hurricane’s winds.
Flying Debris Can Damage Beach Homes
In a massive hurricane storm, roof shingles, roof tiles, street signs, awnings, gardening equipment, and other unsecured ground materials can all be picked up and blown several hundred feet in the air.
Buildings are exposed to damage from the flying debris, with windows and doors the most susceptible to impact.
Trees And Power Lines Damage Beach Homes
Trees and power lines which have been blown down and power lines present a real and present danger to the house.
The highest wind speeds from a hurricane were recorded in the Labor Day Hurricane of 1935: 185-mph (300 km/h) in Florida. These speeds will make even the most innocuous items become deadly projectiles.
They fly with such force that they can penetrate roofs, walls, and the associated components.
Hurricane Cause Water Damage To Beach Homes
When a home’s waterproofing capability is compromised, rainwater will damage the beach home’s interior after the main force of the hurricane has dissipated.
How Do Insurers Respond To The Risks Of A Beach House
Two distinct organizations provide insurance for beach houses.
Federal Emergency Management Agency (FEMA)
After Hurricane Katrina left millions of people without power and destroyed hundreds of thousands of homes, causing billions of dollars in damages, congress passed the “Post-Katrina Emergency Management Reform Act of 2006.”
This act established FEMA as a different agency within the department of homeland security.
FEMA now provides basic insurance to help reduce the socio-economic impact of floods. FEMA is delivered to the retail market via more than 50 insurance companies.
The cover
- Provides replacement cost coverage capped at $250,000 for damage to the home’s structure.
- Home contents insurance on washing machines, furniture, clothes dryers, and freezers are not covered under the basic policy. The cover is available, subject to a limit of $100,000 for an additional premium.
- The cover for basements, crawlspaces, and ground-level enclosures on elevated homes is limited.
According to FEMA, this coverage ranges from $800 to $1,200 a year.
Insurance Companies Issue Specialised Beach House Policies
Several insurance companies have developed specialist beach house products.
The need for specialized insurance for a beach home is determined by the beach home’s distance to the sea.
Insurers generally categorize homes into two primary risk groups.
- Beach houses are occupied as the primary residence.
- Beach houses are occupied for limited periods.
A primary residence will attract a lower premium than a secondary or holiday beach house.
Within these two categories, insures will underwrite the following factors.
The Type Of Beach House
The type of beach house makes a difference when in beach house insurance.
A small cabin, for instance, may attract a lower premium than a three-story beachfront property.
The Distance, The Beach House, Is To The Sea
The distance from the beach (or other water mass) will determine which insurance companies are prepared to provide insurance coverage.
If the beach house is in a high-risk flood zone, the insurance company and the bank which holds the mortgage will probably require you to carry the FEMA flood insurance.
The Age Of The Beach House
The older a beach house is, particularly in moist coastal climates, the greater the wear and tear on the property. The combination of moisture, high humidity, wind, saltwater, and varying temperatures can compromise the structure.
Therefore, insurers will charge a lower premium rate for a newer house compared to an older structure.
The Size And Build Quality Of The Beach House
Insurance premiums are calculated as a percentage (rate) of the value insured.
The bigger the house, and higher the cost of finishes, the higher the premium you can expect to pay.
The Type Of Amenities In The Beach House
Swimming pools and hot tubs add risk to your beach home.
If these facilities are included at your beach house, you will probably pay a higher premium.
The cover provided by your selected insurer should include damage from the following perils.
- Fire and smoke
- Lightning
- Explosions
- Wind Damage
- Theft
- Damage from hurricanes
- General Public Liability
- Cover for outbuildings, including detached garages, workshops, gazebos, and other outdoor structures.
In addition to these covers, the beach house insurance policy will hopefully also offer the following optional protections.
Additional Flood Cover
Primary flood protection is generally excluded from most policies; however, some insurers offer additional cover over and above the FEMA product.
Hurricane Deductible Options
If you raise the first amount payable (the deductible), which the policyholder is liable for, the hurricane cover premiums will reduce.
Replacement Cover
Insurance policies are policies of indemnity. It means that there should be no beneficiation from a policy claim. If a claim is submitted, the purpose should be to place the insured back in the same position immediately before the incident.
With homeowners’ insurance, this may place the insured in a problematic position because although the beach house was only valued at $X, the cost to replace it with a new structure may be $X+Y.
Some insurers offer an optional replacement benefit that will pay a percentage increase on the property’s actual market value to enable the policyholder to rebuild the beach house.
Wind damage cover
Some standard homeowners policies exclude cover for damage caused by high-speed winds.
Confirm that this cover is either included or ask for it to be included in your policy.
Some Insurers Will Offer A Discount For A Wind Mitigation Inspection
A wind mitigation inspection is conducted on the roof of the beach home, concentrates on the techniques used during its construction, and forms an opinion about the roof’s ability to resist high-speed winds.
Your insurance company is legally required to discount the insurance premium rate when they receive an inspection of a roof that achieved a passing grade.
When Insuring Your Beach House Consider The Following
There are several factors that a beach house owner should be aware of when purchasing insurance coverage.
Beach House Insurance Only Commences After Thirty Days
Most homeowner and flood insurance policies only start to provide coverage after thirty days.
It is designed to remove the moral hazard associated with people buying covers only for when a significant storm or hurricane is anticipated.
Irrespective of the risk, it is wise to keep all the covers active annually, regardless of the risk of hurricanes or major storms.
Keep Paying The Beach House Insurance Premium In Time
Don’t allow the policy to lapse, even for a single day. One of the risks factors which insurers asses is the premium payment history of clients. If an insurance premium is missed, this will likely result in a premium rate increase.
Pick The Right Deductibles For Your Beach House Insurance
A deductible is the first amount that the insured must pay in the event of a claim.
There are many reasons that insurance companies impose deductibles, but the result is that the policyholder acts as their insurer for the deductible.
If you, as your insurer, are prepared to increase the amount (deductible) you will be responsible for, this will cause the beach house insurance company to lower the premium rate they charge.
The premium will be discounted, while if you are prepared to pay a higher insurance premium rate, the insurer may be prepared to reduce the deductible.
Does The Rented-Out Beach House Insurance Provide Protection
If the beach house generates income when the policyholder is not in residence, check that this has been declared to the insurance company and that they have confirmed cover is not compromised.
The second leg of this option is to ensure that the policy covers the rental income you would lose if the beach house was damaged.
Conclusion
Insurance policies designed to cover beach houses include perils that standard homeowners’ insurance policies do not provide.
Depending on several variables, including how far the house is from the beach, the type of dwelling, and other risk factors, beach house insurance will generally be higher than a policy for a typical inland home.
References
- https://www.investopedia.com/vacation-home-insurance-how-to-insure-your-second-home-5074122
- https://www.fema.gov/flood-insurance
- https://www.usnews.com/insurance/homeowners-insurance/what-does-homeowners-insurance-cover
