Homeowners insurance has a reputation for being complex. And historically, it has been. Usually it’s full of legalese that’s incredibly hard to parse. It’s little wonder so many folks are in the dark about what their insurance actually covers.
In fact, a
recent study from Realtor.com
found that only 56 percent of homeowners know what to look for when buying a policy. Ouch.
But that’s where we can help. Let’s recap the nine most common homeowners insurance mistakes so you can better understand your coverage and avoid confusion when it’s time to file a claim.
Mistake #1: Assuming Floods Are Covered
Home insurance typically covers water damage related to something like a burst pipe, but it seldom pays claims for water coming into your house from an external source. This means storm surge during a hurricane is usually excluded, as is water damage from flash flooding, broken levies, and broken sump pumps.
Mistake #2: Failing to Compare Offers
Homeowners insurance premiums can fluctuate from company to company. In fact, one insurance company may be too expensive one year, but affordable the next, so you want to compare rates when you shop for coverage.
As you shop, make sure you compare apples to apples. Price is important, but you only know if you’re getting a deal if you also check the coverage amounts and endorsements or add-ons. Otherwise, you may pick the lowest premium only to find out that you’re one of the 64 percent of homeowners who are underinsured.
Mistake #3: Insuring Your Home for Market Value, Not Replacement Value
Confusing your home’s fair market value and its replacement cost is one of the most common homeowners insurance mistakes. The limits on your dwelling coverage should be the amount it would take to rebuild your home, not what someone would pay to buy it. A home’s market value can be higher or lower than its replacement cost, so it’s not an accurate reflection of what your insurance company needs to make you whole after a loss.
Your insurance representative can explain how your insurer calculates dwelling value. Most companies use a similar formula that looks at your home’s square footage, building materials, and other features as well as the construction costs based on your location. Understanding this calculation can help insure your home for the proper value.
Mistake #4: Choosing Too High of a Deductible
You can save money on your home insurance if you choose a higher deductible. This increases your responsibility in a claim, and that ultimately saves the insurance company money. However, you want to be cautious if you go this route. Raising your deductible reduces your premium, but you also have to come up with that amount if you have a claim.
Before committing to a deductible, do the math on how much savings you’re really getting. At some point, the savings may not be worth it if you don’t have an emergency fund to pay for losses. One tip people use is to take the savings from a higher deductible and put that into an emergency fund to build that nest egg. But you have to be disciplined to do this.
Mistake #5: Not Getting Sewer Backup Coverage
Most homeowners insurance policies automatically exclude losses resulting from a sewer backup. That’s right! Damage to your newly-renovated bathroom may not be covered if a flood causes sewer water to back up into your home. Luckily, most insurance companies offer an endorsement that covers this event for as little as $40 per year.
Mistake #6: Underestimating the Value of Personal Belongings
People often grossly underestimate the value of the contents of their home; some even do it on purpose in hopes of saving on their insurance. But think about that might cost you in a total loss. When you add up the value of everything inside your home, from electronics to appliances, clothing, and home goods, you could be looking at more than $100,000 in stuff.
One way to get a better handle on what your personal belongings are worth is to conduct a home inventory. Use a checklist to properly record and categorize your stuff, and then store a copy away from your home so you can access it if there’s a catastrophe. You’ll be glad you have a complete list of lost items that includes serial numbers and receipts.
Mistake #7: Keeping the Minimum Liability Coverage
The default limit for liability coverage in a homeowners insurance policy is usually $100,000, and that may be enough for some people. But others, like homeowners with an attractive nuisance or who host large parties, may have a greater risk of being sued and might want to consider increasing their liability coverage.
There is no requirement or law that says how much coverage you need; it’s up to you to determine what’s appropriate for you. More importantly, increasing your liability coverage won’t dramatically increase your premium.
Mistake #8: Forgetting to Notify Your Insurer of Major Changes
Certain changes in your home life merit a call to your insurance representative because they impact your coverage. For example, let your insurer know if you:
- Get married or ask someone to move in.
- Get a dog on a restricted breed list.
- Remodel your kitchen.
- Add a second bedroom.
Changes like these can mean you need additional coverage, and if you don’t notify your insurance carrier you risk having a claim denied because the new detail wasn’t part of the original coverage. Don’t feel like you’re burdening your insurance agent with phone calls. They need to know and appreciate the heads up.
Mistake #9: Thinking Home Insurance Covers Maintenance Issues
As a homeowner, you’re responsible for maintaining your home. That includes issues that might cause damage if you ignore them. like getting a new roof when necessary or dealing with pests. If you don’t take care of these kinds of problems, your insurance may deny a claim for any resulting damages.
For example, let’s say the railing on your staircase has rotted, and gives away when your neighbor grabs it. While your homeowners insurance usually covers a visitor’s injuries, it would most likely deny this claim because you failed to take care of the railing.
Once you know the basics, getting homeowners insurance is pretty easy. All you have to do is answer a few simple questions and you can have your policy in just minutes. But if you still have questions, our representatives are also ready to help.