Rising construction costs, values outpacing insurance coverage
When Linda Ratcliff's home at 208 Sycamore St. in Anna Maria caught fire a few weeks ago, firefighters were able to save at least the ground floor of the 80-year-old building.
While that might have been enough foundation to rebuild the structure with the expected insurance payment, Ratcliff admitted she hadn't increased her insurance coverage in 20 years.
At a time when Island property values have gone up more than 200 percent in just the past five years - and construction costs have risen accordingly - Ratcliff never thought to update the coverage.
Instead of getting a hefty insurance check to start rebuilding, Ratcliff said her insurance company declared the damaged house a "total loss."
At construction costs on Anna Maria Island ranging from $125 to $200 per square foot, Ratcliff will be lucky to get enough money to build a tool shed.
To rebuild her home completely, she'll have to pay most of the cost out of her pocket. She said she didn't think she'd get enough to rebuild and admitted she had just never thought to increase her insurance.
That's an oversight that many Island homeowners discovered last year following the damages caused by the four hurricanes that struck Florida last year, said Mark Mixon of Jim Mixon Insurance in Holmes Beach.
After Hurricane Frances, a number of Island real estate companies that own vacation homes filed claims, only to find that many of the affected properties were severely under-insured. A lot of those homes were insured for only one-half to two-thirds of their replacement value.
That could be because many new insurance companies in Florida have written policies that do not contain automatic coverage increases for inflation and increased construction costs, explained Mixon.
"You need replacement cost coverage and the policy coverage has to keep up with replacement cost," he observed.
Homeowners need to have their house insured for a minimum of 80 percent of the replacement cost to avoid the "co-insurance" factor.
As an example, explained Mixon, a $100,000 home insured five years ago for $80,000 (80 percent) might now have a replacement cost of $160,000. If the coverage hasn't kept up with the increased value and has remained at $80,000 (50 percent of replacement cost), then a $50,000 damage loss to the home would result in a $25,000 insurance payment. In other words, the homeowner would have to come up with the difference to effect repairs.
Many older Island residents with mortgage-free homes that they've occupied for a number of years might be in this position and not realize it until they have a loss, he observed. He stressed that the insurance coverage is just on the home, not on the value of the property.
"Our advice to clients is for them to get an appraisal just on the value of their home when they want to update their insurance. This will give you a true value of the cost to replace." Mixon also advised any homeowner, particularly before hurricane season, to double-check their policy to make sure coverage is up to date and has replacement cost coverage.
Many Islanders might be surprised to find policies that haven't been updated in a number of years, while their homes have doubled or tripled in value and construction costs have increased correspondingly.
Twenty years ago on Anna Maria Island, construction costs ran about $60 to $80 per square foot. Now, according to several local contractors, those costs range from $125 to $200. If the property owner has not maintained the building insurance to keep pace with replacement costs, they could be in trouble in the event of a disaster.
On the Island, said Holmes Beach Building Official Bill Saunders, construction costs are higher than they are on the mainland. He agreed that a general range of construction costs was anywhere from $125 per square foot to $200 a square foot, depending upon the amenities and decor involved.
Brent Whitehead of Whitehead Construction in Cortez agreed, noting that new construction costs could be even higher.