Homeowners Insurance on a High-Value Shore Home: What to Ask Before You Buy

Get insurance quotes before you make an offer, or at the latest while the contract is in attorney review, and ask about five things: replacement cost, the hurricane and windstorm deductibles, flood coverage as a separate policy, the federal flood program's coverage limits, and the 30-day wait on a new flood policy. On a high-value shore home, those answers belong in your numbers before you commit.

I'm Dennis Mark Interdonato with The Dennis Mark Group at Keller Williams Realty Ocean Living. On a shore home in Monmouth or Ocean County, insurance is part of what the house costs to own.

Replacement cost or market value: which number do you insure?

Replacement cost. The NJ Department of Banking and Insurance (DOBI) consumer guide, Insuring Your Home, says the cost to rebuild "is not necessarily the same as the amount you paid when you bought your home or the current price you would get on the market. It is important to insure your home to its replacement cost." It also warns that most policies carry a co-insurance penalty if you're underinsured and suffer a loss.

Policies typically cover the dwelling at replacement cost but your belongings at actual cash value, meaning their value now, after age and condition, unless you add a replacement cost endorsement. And DOBI's extreme weather page reminds owners that "new construction and remodeling add value to your home and may increase its replacement cost."

How do hurricane and windstorm deductibles work in New Jersey?

They're separate from your regular deductible, and a common type is a percentage instead of a flat amount. DOBI's guide explains:

• Hurricane deductibles "apply only to losses that occur during a hurricane, which is an event that is designated as a hurricane by the National Weather Service, and only if sustained wind speeds of 74 mph have been measured anywhere in New Jersey."
• A common type is a percentage of Coverage A, the dwelling limit: 1, 2, 5 or even 10 percent. DOBI's example: "a $500,000 home with a 5 percent deductible would have a $25,000 deductible."
• A windstorm or hail deductible is optional. It can be a fixed dollar amount or a percentage of Coverage A up to 10 percent, and it lowers the premium.

Ask your agent whether changes such as hurricane shutters could reduce or eliminate the deductible, as DOBI suggests. And don't wait: the guide says it generally isn't possible to buy new homeowners insurance, or upgrade a policy, within a specific time period of an approaching hurricane.

Is flood covered by homeowners insurance?

No. DOBI is plain about it: "Flooding is not covered under standard homeowners policies," and homeowners policies don't cover flooding that comes with a hurricane. Flood is a separate policy, from the National Flood Insurance Program or from a company that offers private flood insurance, and DOBI keeps a list of companies writing private flood coverage in New Jersey.

Start with the flood zone. Search the address on FEMA's Flood Map Service Center. FloodSmart says flood insurance is required in high-risk zones, those starting with A or V, if you have a federally backed mortgage. FloodSmart also says a buyer may be able to assume the prior owner's current NFIP policy, which is covered in can you take over the seller's flood insurance policy?

How much flood coverage can the NFIP provide?

FloodSmart's policy page says: "Building policies cover up to $250,000 of flood damage and contents policies cover up to $100,000 of flood damage for belongings kept inside your home." Building and contents coverage are typically bought separately, with separate deductibles. FloodSmart also lists what a flood policy doesn't protect, including personal property kept in basements, temporary housing during repairs, and property outside the building, such as decks, patios, fences and swimming pools.

On a home that would cost more than $250,000 to rebuild, ask about excess coverage. FEMA itself has said "there is a small private market that enables some NFIP policyholders to purchase excess coverage above the NFIP's current coverage limits," in a legislative proposal to raise those limits. Your insurance agent can tell you what's available for the house.

When does a new flood policy start?

Usually 30 days after you buy it. FloodSmart lists four exceptions, and two matter most when you're buying:

• "There is no wait if you buy flood insurance while making, increasing, extending or renewing a mortgage."
• There's a one-day wait if the property is in a newly designated high-risk flood zone and you buy within 12 months of the map update.

If you're paying cash, the mortgage exception doesn't help you, so line up the policy well before closing.

What else should you ask your insurance agent?

DOBI's guide flags other coverages worth asking about:

• Valuables. Policies provide only limited coverage for jewelry, silver and certain other valuables unless you schedule them.
• Sewer backup or sump pump overflow. Available as an endorsement, usually limited to $5,000.
• Oil tank liability. "If you have an active or even inactive fuel tank on your property, you may want this coverage."
• Your boat. "Some policies will cover small motorboats and sailboats, but not larger ones."
• Building code upgrades. Most policies exclude the added cost of repairs due to codes enacted since the home was built; some coverage may be available by endorsement.

If the regular market won't write a policy, DOBI says surplus lines insurers can step in for some risks, a very high value being one example, though they aren't regulated to the same degree. The New Jersey Insurance Underwriting Association, known as the FAIR Plan, offers basic coverage such as fire, lightning, wind and smoke, and DOBI says to consider it "only if you cannot obtain insurance from any other source."

One more from the guide: your lender will require homeowners insurance, but "You are not required to buy insurance from any company that may be recommended by your lender."

When should you get the quotes?

Before you make an offer. At the latest, during attorney review: in New Jersey, a contract prepared by a real estate licensee becomes legally binding after a three-business-day attorney review period unless an attorney disapproves. How the contract handles insurance is your attorney's call. Ask the seller early for the elevation certificate and the current flood policy, and read what to inspect on a luxury home next.

See how I help buyers on the buying page and the Waterfront page, and get the full checklist in the Luxury & Waterfront Guide.

Frequently Asked Questions

Does homeowners insurance cover flooding in New Jersey?

No. DOBI says flooding isn't covered under standard homeowners policies, including flooding that comes with a hurricane. Flood is a separate policy.

What is a hurricane deductible in New Jersey?

A separate deductible that applies only to a National Weather Service-designated hurricane with sustained winds of 74 mph measured anywhere in New Jersey. It's often 1, 2, 5 or 10 percent of the dwelling limit.

What's the most NFIP flood insurance covers on a home?

Up to $250,000 for the building and $100,000 for contents, according to FloodSmart. Ask your agent about excess coverage above that.

Is there a waiting period for flood insurance when I buy a house?

Normally 30 days, but FloodSmart says there's no wait when you buy flood insurance while making a mortgage.

This is general information, not legal, tax or lending advice, and not insurance advice. Your insurance agent, lender and attorney decide what applies to your purchase.

About the author

Dennis Mark Interdonato is a REALTOR® and Master CDRE® who leads The Dennis Mark Group at Keller Williams Realty Ocean Living in Point Pleasant, NJ, helping buyers and sellers throughout New Jersey make their next move, with Monmouth and Ocean County as home base. Read more about Dennis Mark.

Keep reading

• Can you take over the seller's flood insurance policy?
• Inspections for a luxury home: pool, elevator, generator and the systems buyers forget
• New Jersey homebuyer's guide to flood zones and the true cost of homeownership
• Own a shore home already? See what it's worth with a home value estimate.
• Have a question this didn't answer? Send it to Dennis Mark and it may become the next article.