Given the relationship between insurance and real estate and the propensity of regular superstorms in the Hamptons, I met with insurance broker Tim Brenneman, Executive Director of Cook Maran & Associates, which has five offices in New York and New Jersey, including East Hampton and Southampton, to get the real deal on what every homeowner should know to protect their slice of heaven on the East End of Long Island.
"Let me start by saying a homeowner's policy is designed for a homeowner who intends to occupy their home," Brenneman began when explaining flood insurance. "So if you're buying your home to occupy as a primary, secondary, or seasonal basis, it's all the same as long as you intend to occupy that home. The second you decide to rent your home, that's when you should contact your insurance broker. If you are renting out your home on a permanent basis, your agent will re-write your insurance to a dwelling fire form which has an allowance for the owner to rent the home, otherwise if the home is not owner occupied it could trigger an exclusion whereby coverage is not available."
When it comes to the more common seasonal rentals, Memorial to Labor Day or shorter periods of time he says, "The home owner's policy should be sufficient but it may affect contents, and that should be discussed with your insurance agent." That covers the homeowner but what about the renter? "If the renter owns another home which is insured, for instance, a co-op in the city, it is easy and very inexpensive to extend that policy and coverage to the home they will be renting. If they have an umbrella policy, which we always recommend, they should contact that carrier and will be protected for liability."
Even if the renter doesn't own elsewhere he or she can still be covered, "If the tenant has renter's insurance elsewhere, condo, co-op, or rental, that coverage can be extended to the temporary rental."
A major concern of home owners on the East End of Long Island is flood insurance and the role of FEMA, (Federal Emergency Management Agency) especially with the devastation of Hurricane Sandy still fresh on the minds of many. "Let me emphasize that I do not believe that anyone's insurance is complete without both a homeowner and flood insurance policy," stressed Brennemen. "Flood insurance is defined as rising ground water and tidal water. It is excluded from homeowner insurance."
Brenneman went on to explain, "The only place to buy flood insurance is through a federal program administered by FEMA and sold by many different providers who put their names on the policy but they really are only administrating the National Flood Insurance Program. So the rates and the coverage are the same except the name on the policy. Currently, because of the storms that the country has experienced over the past ten years, the program is substantially in the red. There are a number of changes being considered including the re-writes of the flood zones especially in areas that are considered flood-prone, which includes New York and New Jersey. Flood maps are being re-written as we speak. It is anticipated that we will begin to see revisions in October of this year which will result in increases in premiums which may be quite substantial."
Homeowners can be denied flood insurance Brenneman says, "Only if their community does not participate in the flood insurance program. The vast majority of communities in New York and New Jersey do participate, which means they have adopted the federal guidelines for zoning and other guidelines with intended to mitigate the possibility of flood damage."
It's the water and sustained winds that do the most damage and might not be covered in your policy Brenneman explains, "Most people think of water coming up to their doorstep and that will never happen. But the biggest threat we face in this area is hurricanes which brings two principal concerns - wind, which is covered by the homeowner policy, and water, specifically rising tidal and ground water that would be covered under the flood policy. With hurricanes it often isn't the winds but the amount of rainfall over a short period of time that causes damage that can only be covered under flood insurance."
Superstorm Sandy vs. Hurricane Sandy explained. "If you recall," says Brenneman, "immediately after Sandy struck, Governors [Chris] Christie and [Andrew] Cuomo declared that Sandy was not a hurricane. The reason was because substantial deductions in homeowner's policies would have applied if it were. For example, a home insured for a million dollars could have a deductible of fifty thousand dollars."
Replacement and repair after the storm kept the trades in business but many homeowners were confused says Brenneman, "It's the responsibility of the insurance carrier to restore your property to the condition it was before you sustained damage. For example, a damaged roof will not necessarily result in the replacement of the entire roof."
Insurance companies do take into consideration the varying costs of labor and materials in one community as compared to another he says, "But as happened in Florida, where the damage took place in a confined area and the demand for replacement parts exceeded the available supply, the costs were driven up substantially. That concept is known as 'demand surge' and the insurance companies will only pay up to a certain amount in order to keep in check what contractors may charge. In the case of Sandy, a lot of homeowners who purchased all of the insurance available to them still found themselves with uncovered costs, the reason being the specific limitations placed on flood insurance by FEMA - furnace, hot water heater - in general, what's known as the 'mechanicals' but not property stored in the basement nor bushes, decks, for instance."
Where is the issue of flood insurance going for homeowners on the East End of Long Island in the immediate future? "What I see is," states Brenneman, "more homes in high risk areas being included in flood zones, and an attempt by the federal government to have those homeowners bear a greater part of the costs by increasing premiums in higher risk areas."
Editor's Note: Tim Brenneman is the Director of the Cook Maran Associates Real Estate School, located in East Hampton and Southampton, an institution where writer John A. Viteritti teaches.
John is a St. John's University graduate, licensed Real Estate broker, lecturer, teaches real estate license classes at LIU, NYU, and Cook Maran Real Estate School, and is a well-respected consultant to the real estate industry. www.johnaviteritti.com