Having the proper homeowners insurance is essential for protecting your home and belongings
- Always account for increases in the value of your home.
- Focus on an insurance company’s reputation rather than just the policy price.
- Learn the difference between a replacement cost policy vs. an actual cash value policy.
- Don’t try to lower your premium by buying less coverage than you need.
- Assess if you’ll need extra coverage for flooding, hurricanes, and earthquakes.
- Bring a list of questions to ask the insurance agent so you don’t forget anything.
Your home is your castle. It’s also been a refuge for most of us during the pandemic. You need the right homeowners coverage to protect your property and valuables. Whether you already have a policy or you need to update or buy a new one, it’s very important to choose insurance carefully.
We go over six of the most common mistakes people make when buying homeowners insurance how you can avoid them for peace of mind.
Mistake #1: Not accounting for an increase in your home’s value
Most homes appreciate over time, but many people don’t take this value increase into account. They may therefore buy a policy that only covers the purchase price of their home or the balance of their mortgage. If this describes your situation, your losses could cost more than your policy will cover if you experience a catastrophic event.
The fix: Work with your insurance agent to determine the value of your home NOW and buy a policy that covers its worth. This will ensure you have enough to repair or replace your property and belongings.
Mistake #2: Focusing only on the price of a policy
Choosing a provider that gives you the lowest price might be tempting, but do your homework on the company first. Make sure they have a good reputation and that they have been in business for a long time. Be sure to check out their history of handling and processing claims, as well. These can be more important factors than price.
The fix: It might be smart to avoid the highest and lowest quotes, and instead look at those in the middle.
Mistake #3: Not understanding the difference between actual cash value vs. replacement cost
There are two basic types of insurance policies: Actual Cash Value and Replacement Cost. The kind of policy you choose will make a big difference in whether you have enough coverage to pay for repairs or replacement of your belongings.
Actual cash value (ACV) covers the depreciated value of property at the time of the loss. In other words, it only covers the value of the item now. “Actual cash value leaves you in a tough position because you won’t be able to go out and buy a similar item new, at least not without some of the money to replace it coming out of your pocket,” according to The Balance.
The fix: Choose a “replacement cost” policy. This type of policy pays based on what it would cost to buy the same item as new. This means you will have the money you need to replace the items or property that you lost.
Mistake #4: Going with less coverage to get a lower premium
Yes, insurance can be expensive, but buying less coverage than you’d need to repair or replace your home in the event of damage can leave you in a real financial bind.
The fix: There are other ways to save money on homeowner’s insurance, including going with a higher deductible. Look into other strategies like bundling insurance policies (such as auto or boat insurance).
Mistake #5: Forgetting about extra coverage
Some things aren’t covered by a typical homeowner’s policy. For instance, most basic policies don’t cover damage from flooding, hurricanes, or earthquakes. You’ll need separate insurance to cover those things.
The fix: Take riders and extra policies into account when choosing insurance.
Mistake #6: Failing to ask the right questions
Insurance policies can be difficult to understand. You might think something is covered when it’s actually not. Or you might believe you have a replacement cost policy when it’s an actual cash value policy.
The fix: Before signing anything, make sure you ask these questions to ensure you understand everything.
- What’s covered?
- What’s excluded?
- Are there any coverage limits?
- How are claims handled?
- Do I need any additional coverages or riders?
- Are my personal belongings covered and for how much?
- Are there any discounts available?
- Are there any bundles or umbrellas policies available?
Make sure you have the right homeowners coverage
The right homeowners insurance policy is essential to protect your property and help pay for repairs or replacements. Making a common mistake might end up costing you a lot down the road.
Disclaimer: This blog and website are made available by the publisher for educational and informational purposes only. It is not to be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state.