Risking it All

If all goes according to plan, Charlotte Schou and husband Ezra Deutsch will no longer be at the mercy of skyrocketing windstorm and flood insurance rates when it’s time to ring in 2025.

In the coming year they’ll be slashing their dining out and weekend getaway budget, among other nonessential living expenses, because they’re intent on saving money in order to pay off a $150,000 home equity line of credit that’s forcing them to insure their three-bedroom house in Biscayne Park, Schou told the Biscayne Times.

“We are going to aggressively pay down the line of credit in 2024 so that, maybe, we don’t have to take out home insurance anymore in 2025,” she said. “We can put $10,000 or $12,000 back in our pocket. I can do a lot with that money, and I would rather not give it to an insurance company.”

Schou and her husband are among hundreds of home and condo owners between Interstate 95 and the Biscayne Corridor who are either close to paying off loans or own their homes outright who are opting out of Florida’s windstorm and flood insurance market. For owners tied down by long-term mortgages that require they carry property insurance to cover a total loss of their home, the options are much bleaker. If they can’t afford to keep up with rising prices for property insurance premiums, they’re simply selling their homes and pulling up stakes, real estate experts say.

Florida windstorm insurance policies are the most expensive in the United States, averaging roughly $6,000 a year, 42% higher than in 2022, according to the Insurance Information Institute. Real estate experts interviewed by the Biscayne Times say premiums in certain areas are more than double, sometimes triple, than the average annual cost for a policy in Miami-Dade County, especially in Miami neighborhoods close to the water, like Belle Meade and Morningside or San Souci Estates in North Miami.

“Five years ago, when I would list a property, the No. 1 reason for people deciding to sell was traffic,” said Jack Coden, a Realtor with Keller Williams. “Now the No. 1 reason is property insurance. For some people, it is not worth it to stay in Florida.”

The Insurance Information Institute estimates that 15 to 20% of Florida homeowners have chosen to “self-insure” by not purchasing windstorm coverage, said Mark Friedlander, a spokesman for the industry’s advocacy group. Across the U.S., 12% of homeowners do not have property insurance, an increase from 5% in 2016, Friedlander added.

Also, he said, only an estimated 18%of Florida homeowners have flood insurance.

No Mortgage, No Insurance

With dozens of listings between Miami’s Upper East Side neighborhood and the Treasure Coast in Martin County, Coden is noting a trend with buyers paying entirely with cash.

“Maybe 25% of homeowners don’t have mortgages,” he said. “And 90% of them are dropping insurance. They get quotes and they are in shock. People are choosing to self-insure.”

Jeff Tomlinson, another Realtor who deals in homes selling at $700,000 or above in northeast Miami-Dade, said he is also seeing all-cash buyers taking a pass on insuring their properties in the event of a hurricane.

“Windstorm insurance is a rip-off,” Tomlinson said. “Roughly 60 to 70% of my clients who pay cash aren’t paying for windstorm insurance.”

Tomlinson can personally relate to homebuyers who have the means to self-finance and avoid having to obtain windstorm insurance. In 2007, he and his wife paid off a mortgage they took out to purchase their waterfront three-bedroom house in San Souci Estates for $410,000 in 2004.

“I pay for flood, fire, liability and theft insurance,” he said. “But I dropped my windstorm after Hurricane Wilma. My insurance company wanted to double me, so I told them, ‘Goodbye.’”

For flood insurance, he’s paying a grandfathered rate of $2,200 a month, but that only covers up to $250,000 worth of water damage, Tomlinson said.

“That won’t even cover the couches and home theater tower in my living room,” he said. “To get to $1 million in flood insurance coverage, the premium has to be three to four times what I am currently paying. I would have to increase my annual payment to $4,000 or $5,000.”

Making Homeownership Unattainable

Yet, the purchase of a similar home in today’s market would force a buyer with bank financing to pay at least $10,000 a year for flood insurance, Tomlinson said.

Typically, a homebuyer needs to put down 20% of the purchase price. But Tomlinson is telling his clients that they have to plan on paying 30% when factoring in the amounts they will have to pay for insurance protection.

“It drops your buying power considerably,” he said. “If you had planned on getting a $1 million home with financing, you really have to get down to homes in the $900,000 range. This is all caused by the increases in insurance rates.”

The property insurance crisis is making it more expensive for homebuyers who rely on bank financing to close deals, said Norman Powell, a real estate attorney based in North Bay Village. In many cases, financial institutions are requiring that buyers pay for one year’s worth of windstorm and flood insurance, plus escrow funds to cover some of the following year’s insurance premiums, he explained.

“When I show buyers the closing statement, their cash to close has increased by 20 to 30% in some cases just based on the additional funds they have to put in escrow for property insurance,” Powell said. “I’ve seen people scrambling at the last minute to come up with the additional money needed to close.”

For homeowners who have paid off their mortgages, skipping out on windstorm and flood insurance can make sense if they take the funds they would have used to pay their annual premiums and invest it in an interest-earning savings account, said Powell, who is also Miramar’s city attorney.

“Even if you only have $200,000 left to pay off on your mortgage, if you have a $1 million home, the bank still requires you to insure the full value of the property,” Powell said. “But if you could take that $5,000 that you set aside for 25 years to pay property insurance and put it into a CD account, you could easily pay to fix your house on your own if it was damaged in a hurricane.”

Deciding to Drop Insurance

Schou and Deutsch bought their Biscayne Park home for $412,500 in 2018 without any bank financing. But a year later the couple obtained the line of credit to make renovations to the house, requiring them to obtain windstorm and flood insurance.

When they received their policy renewal documents in late 2022, the premium to insure their property for the upcoming year shot up by nearly 37%, Schou told the Biscayne Times.

“I told my insurance broker that this was insane and that it blew up our budget,” she said. “My broker told me that this was the cheapest rate she could find for me.”

Schou and Deutsch also couldn’t qualify for a policy with Citizens Insurance, the non-for-profit insurer of last resort run by the state of Florida.

“My husband and I had to just deal with the 37% increase,” Schou said. “It was quite a shocker last year.”

Their insurance premium for 2024 rose by nearly another 12%, Schou added. So, their goal now is to pay off their line of credit in order to stop paying windstorm and flood insurance by 2025.

“Even if we have a total loss on the property, the value of the land is worth more than the house,” Schou said. “We would take the loss and start fresh. But our fingers are crossed that never happens.”