12 Common Homeowners Insurance Mistakes to Avoid
For most homeowners, their house is their largest investment. In addition to their mortgage payments, they have also made a down payment, borne the cost of repairs and maintenance, and invested in home improvements. With so much money, time, and effort going into the home, protecting it against a catastrophe is an essential component of financial planning. Absolute Choice Insurance in Kissimmee, Florida, helps clients secure their future with robust insurance products from highly rated carriers that protect their homes, vehicles, businesses, and health.
Why So Many Homeowners Make Home Insurance Mistakes
Without insurance, a freak occurrence that severely damages or destroys the home leaves the homeowner out the money invested and facing ruinous costs for reconstruction. Most homeowners understand this and take out a home insurance policy as soon as they purchase a residence. Despite this, they often assume policies are the same and make the mistake of shopping based on the lowest premium. Unfortunately, as with any other product, you get the insurance coverage you pay for.
Premiums vs. Coverage
Insurance companies can only afford to offer cheap premiums if they cut coverage. Opting for cheap home insurance means insuring the home for less than the replacement cost, under-insuring goods, and valuables, accepting too many exclusions, and facing a higher risk of claim denials. After a disaster, many homeowners find that their “cheap” policy actually cost them much more in the long run.
But we don’t want to overpay for a policy, so blindly picking the most expensive choice is also a dangerous practice. To find the right policy for you, it’s important to compare policies carefully. Absolute Choice Insurance helps clients by finding the policies that provide all the right protections for the individual from financially strong insurers who offer cost-effective premiums. By buying their home insurance through Absolute Choice, clients ensure that they never make the 11 insurance mistakes that often cost homeowners their entire investment.
The 11 Biggest Home Insurance Mistakes
1. Under Insuring Your House
Imagine if your home was destroyed by a fire. How much would it cost to rebuild? The answer to this crucial question is the amount of insurance coverage you need. Do you know what it costs to rebuild?
If not, a 2009 study indicates you are far from alone: two-thirds of homeowners remain underinsured, meaning the maximum benefit amount is insufficient to replace the house.
You Need More Than the Mortgage
Many homeowners make the mistake of buying only enough insurance to cover their mortgage. As a result, they are paying premiums that protect their lender’s interest instead of their own. If a fire destroys the home, the insurance only pays off the mortgage, and the homeowner is left with a pile of ash. To be fully protected, the homeowner needs to buy a policy that covers the full cost of rebuilding.
Don’t Risk Equity
Carrying just enough insurance to pay the mortgage also leaves home equity at risk. Many mortgages cover just 80% or less of the home’s value. Should a fire destroy the home, the owner’s equity goes up in smoke. As homes appreciate in value, owner equity increases. To remain fully covered, it’s important to periodically raise policy limits to protect this vital asset.
Don’t Confuse Values
It’s also important not to confuse the current value of the home with its replacement cost. In fact, the actual cost of rebuilding often exceeds the value. This is especially true after a regional storm destroys a large number of homes. Labor and supplies are stretched by a mass casualty event, leading to far higher costs.
Determining a rebuild cost requires a special appraisal, but it’s well worth the cost to ensure your most valuable investment remains protected. Some insurers also provide appraisals. To reach an accurate rebuild estimate, it’s important to factor in the costs of special features, such as marble floors or expensive woodwork.
Opting for an automatic inflation provision avoids the need to reevaluate rebuilding costs. This policy feature automatically increases coverage based on inflation. Premiums must also increase in proportion to the policy limits, but any increase is minuscule compared to the potential loss from being underinsured.
Don’t Forget Your Valuables
Many homeowners also under-insure their personal property, especially valuables such as jewelry, antiques, and computer equipment. As with coverage for the house, there is a difference between the value of items and their replacement cost. For a larger premium, you can insure your valuables for the full replacement cost. If you have highly expensive valuables in the home, such as fine art, you may need to purchase extra coverage through a policy rider. Without a rider, the policy limit for valuables may not cover the full extent of the loss.
2. Assuming Your Policy Includes Flood Protection
Homeowners policies do not cover damage from flooding. They do cover water damage from incidents other than floods, such as a burst pipe. However, if mother nature decides to deluge your property with water, you are out of luck unless you purchased a separate flood insurance policy. Anyone living near a body of water or in a flood plain should always carry flood insurance. Mortgage companies require flood insurance for homes in areas with high potential for flooding.
Flood insurance is provided through a federal government program that guarantees it to any homeowner. While flood insurance is a no-brainer for coastal areas, many inland properties can also be destroyed by floodwaters. To determine if your property is at risk, visit floodsmart.gov. If your home is in a risk zone, you can purchase flood insurance through your insurance company. Premiums vary based on location and the selected coverage amount. A 30-day waiting period applies to flood insurance policies, so be sure to obtain coverage long before disaster strikes.
3. Misunderstanding the Deductible
Many homeowners insurance policies contain provisions that assign different deductible levels based on the cause of the loss. Most of these policies have a $500 or $1,000 deductible that applies to most incidents. However, damage from named storms, windstorms, earthquakes, and other acts of nature may be assigned a separate deductible based on a percentage of the damage. These percentages range from a few points to 15%. For example, damage from a storm or earthquake that totals $100,000 could come with a deductible of up to $15,000.
Because of these provisions, it’s important for homeowners to have cash set aside to cover out-of-pocket costs. Alternatively, some homeowners may choose to buy a flat-rate deductible policy, though these may be prohibitively expensive for some. When deciding to purchase a home, it’s wise to find out the cost of insurance and potential out-of-pocket expenses to determine if the house is affordable.
4. Assuming Mold and Sewage Backup Damage Is Covered
In fact, many homeowners policies exclude these types of damages or severely limit coverage. If your insurance policy does not cover mold or sewage backup damage, consider purchasing separate coverage for these eventualities. Sewage backups can cause extensive damage and are more common in older homes with thinner pipes.
Mold removal is very expensive, so if you live in an older house built without mold-resistant materials or in a wet, humid climate, coverage for mold can be well worth the premium.
5. Forgetting to Make an Inventory of Possessions
Most of us would rather go to the dentist than spend our free time making a list of all our possessions and determining their value. However, your home insurance policy protects these personal items, so you want to ensure you receive the benefits if they are destroyed or stolen. In order for the insurance company to accept a claim, they need documentation.
An inventory of your possessions provides the evidence you need to back up your claim. In addition, it shows if your coverage level is sufficient. Most homeowners’ policies have limits on personal possession coverage, especially for expensive items. You may find an increase in coverage and rider that protects valuables are necessary.
6. Avoiding Home Maintenance
It’s all too easy to ignore problems, such as signs of plumbing issues or mold buildup. If we delay too long, these issues can turn into catastrophes. The result is having to pay expensive deductibles and then bearing an increase in insurance rates. In some cases, lack of maintenance can even result in a claim denial. Practicing vigilant home maintenance prevents these problems.
7. Choosing a Home Insurance Provider Based on Price
While getting a good price is important, lower premiums often mean inferior coverage. Choosing a cheap homeowners’ insurance policy can quickly become a penny-wise, pound-foolish mistake when a loss is incurred. It’s important to choose a company that has excellent financial ratings and a history of paying claims promptly. Customer service reviews can provide a strong hint as to whether an insurance company takes good care of its clients.
When comparing policies, it pays to delve into the details. Lower premiums often come at the expense of coverage. To gain an apple to apple comparison, compare price based on the same coverage limits, exclusions, and riders.
8. Forgetting to Bundle
Bundling insurance products can save a tremendous amount of money without sacrificing coverage. To obtain insurance policies that provide excellent protection without having to pay full price, bundle your homeowners, auto, and other insurance coverage and reap the discounts.
9. Not Informing the Insurer of Changes
When you make major changes to the property, you alter its value. For example, an addition will increase the home’s value and replacement cost. Construction also entails additional risks. As a result, your coverage limits should be revised, which will probably increase your premiums. However, if you fail to inform the insurer, the underwriter may reject a future claim on that basis. It’s a good idea to inform the insurance company and keep a copy of its acknowledgment letter.
10. Not Understanding Hazards Specific to the Home’s Location
Before deciding on a home insurance policy, it’s wise to understand any risks that are endemic to your home’s location. For example, is the area prone to flooding, earthquakes, or mudslides? Most standard home policies do not cover flooding, earthquakes, or mudslides, which means if one destroys your home, you have no coverage. However, you can purchase special coverage policies that compensate you when damage results from specific causes not covered by standard homeowners’ policies.
Knowing about specific hazards in the area makes it possible to purchase extra coverage.
11. Not Taking Personal Liability Insurance
Personal liability insurance covers you in the event you face legal liability for an accident that occurs on your property. Even if you are not at fault for the accident, you can still find yourself facing a legal battle. Personal liability insurance covers legal costs, settlements, and judgments against you.
For example, if a guest were to trip and fall on a crack in your walkway and suffer a serious injury, you could be on the hook because the crack presented a danger that should have been fixed. Declining personal liability insurance can endanger your property, especially if you have significant equity. With no liability coverage, an adverse legal ruling could force you to tap your home equity or even sell the home.
12. Setting the Deductible Too High or Too Low
It’s tempting to choose a high deductible in order to save money on premiums, but setting it too high can be a disaster. Most homeowners have fairly tight budgets, which means they don’t have lots of extra cash around for unexpected repairs. By setting a deductible between $500 and $1000, homeowners can save on premiums while also avoiding a cash crunch should they face high home repair costs.
Get the Right Home Insurance Protection Now
Wondering if you have the right home insurance coverage? Absolute Choice Insurance can evaluate your situation and determine if you have any coverage gaps. To ensure you have the best protection, contact Absolute Choice Insurance in Kissimmee, Florida at our South Florida phone: 305-275-1777 or Central Florida phone: 407-344-4444. Browse our website at www.absolutechoiceinsurance.com.