Common Mistakes to Avoid With Your Home Insurance October 14, 2021
Despite its benefits and importance, homeowners insurance can be a confusing topic for many. It’s not uncommon for policies to have confusing language that can be hard to understand. As a result, many homeowners may be unaware of what their policy actually covers.
According to a recent study by realtor.com, only 56% of people knew what to look for when they were purchasing their home insurance policy. That indicates that many people aren’t aware of the coverage they need and may find the whole process confusing.
Here are some of the most common insurance mistakes you should avoid when buying home insurance. Knowing what to look for in your policy will help you avoid any confusion or headaches later on.
Common Mistakes to Avoid With Home Insurance
Assuming You Have Flood Coverage
Typically, a standard home insurance policy covers water damage, including burst pipes. However, it rarely covers water damage that comes from an external source. That means if a hurricane causes flooding in your home your insurance won’t cover the damages. Similarly, home insurance doesn’t cover water damage from broken levies, sump pumps, and flooding.
If you need flood insurance, you’ll need to buy it separately. Typically, flood insurance costs $700 a year on average. The cost will depend on your location and your home’s value.
Regardless if you live in a high risk area for flooding or not, it’s wise to have a flood insurance policy just in case.
Not Comparing Coverages
Note that home insurance premiums vary from insurer to insurer. One company can be very costly one year but may decrease their prices the next year. That makes comparing rates of different insurers extremely important when shopping for coverage. As you compare prices, make sure you check their add-ons and coverage amounts. If you fail to do so you may end up picking a lower premium that doesn’t offer appropriate coverage.
If you’re underinsured and you file a claim, your insurance company may not cover it. Avoid these headaches and talk with your insurance provider to figure out what coverage is appropriate for you.
Insuring Your Home Based on Market Value Instead of Replacement Value
A lot of people confuse their home’s replacement cost and market value. Your dwelling coverage limits should be the amount it would take to rebuild your home, not the amount people would pay to buy it.
The market value of a home increases and decreases depending on the current market compared to replacement cost. Therefore, your home’s current value can be different than its replacement cost. For example, if something were to happen to your home and you had it insured for its market value, it would be an inaccurate reflection of what your insurer would pay. Make sure to consult with your insurance agent to insure your home for its proper value.
Opting for a Higher Deductible
Did you know you can save a significant amount of money on a home insurance policy by choosing a higher deductible?
However, doing so increases the amount you pay towards the claim, which saves your insurance company money. If you decide to go this route, you need to be cautious. You need to keep in mind that although a low premium sounds nice, you’ll have to pay more if you were to file a claim. If you don’t have the proper funds to pay for this, we would advise you not to opt for a higher deductible.
In a nutshell, buying a home insurance policy can be risky if you don’t know what to avoid. Thus, the article includes some common mistakes you should never make when buying a home insurance policy.