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Insuring New Jersey Coastal Properties 

Esposito Umbrella

Q: How does an investment property get valued for insurance?  The best coverage will require that a building be valued at the reconstruction cost, which often is more than the cost to purchase, particularly if a building is distressed.  This will allow you to have replacement cost coverage. Conversely, many policies will allow you to insure for a discretionary amount, but these policies invariably will deduct depreciation for the building components on any claim.

Q: Why does it cost more to insure a property by the shore?  Properties have significant exposures to wind, water and storms that they don’t face inland, which means that insurance companies charge more to cover these added risks.  Also, many companies refuse to insure property close to the shoreline, and the lack of competition also adversely affects pricing.

Q: Does a landlord policy cover rent that can’t be collected?  A good landlord policy should cover at least 12 months of rental income if your building is uninhabitable during repairs due to damages by a covered peril, but you need to make sure you have this coverage on your policy. Always go over in detail the specifics of your policy with your insurance agent.

Q: What does it mean if I insure with a company that is non-admitted by the NJ State Department of Banking and Insurance?  Many companies that insure homes at the coast are not “admitted” by the NJ State Department of Banking and Insurance.  This means that they do not have the state’s guaranty fund backing if they become insolvent during a claim – which means you wouldn’t get paid if your insurance company goes bankrupt.  Also, these policies are not vetted by the state department of banking and insurance, which means that there is a higher probability of unanticipated exclusions, such as animal bites.

Q: How does a hurricane or wind deductible work?  Many companies employ a percent deductible for a claim that occurs during the time around a hurricane – 2% of the claim is common.  This means that 2% of the building’s value on the policy is used as your deductible – i.e. $500,000 for the building with a 2% deductible = $10,0060 that you’d need to pay as your deductible before coverage kicks in. A wind deductible works the same way, except that the penalty deductible is triggered by ANY wind damage, not just resulting from hurricanes.

Q: Do I have to buy flood insurance?  If you are in a flood zone (rated as being A or V by FEMA) and if you have a mortgage, the mortgage company will require that you carry flood insurance. If you are not in a flood zone, you would need flood insurance in order to be paid for any flood claim since property insurance does not cover it. It is important to remember that even if your property isn’t located in a designated flood zone, it may still be at some risk of flooding. It is also important to note that flood insurance does not cover loss of rental income.

Q: What is building ordinance coverage?  Do I need this?  Building Ordinance Coverage is designed to cover the additional costs of repairs that are needed to bring a building in line with updated codes that have changed since the building’s original date of construction. For example, if you are required to rebuild your property differently because of laws or ordinances – such as elevating a home that has been damaged near the coast – that have been enacted since your property was built, you are not covered unless your policy contains this coverage. If a building was built according to outdated building codes, then a typical insurance policy may not be enough to cover the necessary repairs to bring the building up to current ordinances. Building Ordinance Coverage can help bridge this gap.  

Call us to get quotes, to review your current policies or to ask any insurance question. 

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