ONLY FOCUSING ON PRICE
It’s one of the first things you do when you’re shopping:
look at the price. And similar to anything else you purchase, it’s important to
understand exactly what you’ll be receiving with your homeowners insurance as
well. Make sure that your “cheap” policy isn’t less expensive because important
coverage has been removed or because the company has inadequate reinsurance.
Just like you wouldn’t buy something that’s missing pieces from a store, get
what you need in your homeowners coverage.
PURCHASING A POLICY FOR THE WRONG OCCUPANCY
People own homes for many different reasons: to fulfill a
dream, raise a family, or maybe supplement the family budget with rental
income. Who is living in your home directly determines the type of policy you
should have. There is a different policy for people who own and live in their
home as opposed to people who own a home that they are renting, or even people
who own a home that nobody lives in. In some instances, your claim won’t be
covered if you have the wrong policy based on the occupancy of your home. This
is because each of these situations carries its own unique risks and are priced
for those risks. If the occupancy of your home changes, make sure to update
your policy accordingly.
NOT UNDERSTANDING EXCLUSIONS TO YOUR POLICY
Insurance companies have long done away with “all risk”
policies, and customers in high-exposure states found them to be
cost-prohibitive anyway. Your homeowner’s policy is meant to protect you in the
event of a major, or even semi-major, disaster but does not respond as a
warranty plan. Take the time to understand from a comprehensive level what is
and is not covered.
THINKING FLOOD INSURANCE IS INCLUDED
Many people are not aware that a homeowner’s insurance
policy does not include flood coverage. Flood insurance covers your property
and/or contents against storm surges and flooding during torrential rains,
hurricanes, and tropical storms. Flood insurance can be bought through the
National Flood Insurance Program. Your insurance agent can help you learn more
about whether it makes sense for you. There is a 30-day waiting period required
before a flood policy will go into effect, so it is important not to buy this
coverage at the last minute.
UNDERINSURING YOUR HOME
Your mortgage company is only concerned with protecting
their asset. Let’s say you own a home that is worth $300,000, but you only owe
$50,000 to the mortgage company. Your mortgage company will only require you to
purchase $50,000 in insurance coverage. Obviously, $50,000 in insurance is a lot
less expensive than $300,000, but what if you have a total loss? You will only
receive a check for $50,000 and it goes straight to the bank – nothing for you!
CHOOSING “ACTUAL CASH VALUE” OVER “REPLACEMENT COST”
COVERAGE
When you experience a loss, Actual Cash Value will only
provide you reimbursement for the “book value” of the item. In many cases an
old couch, table, or computer is worth next to nothing so you would receive
next to nothing. If you select “Replacement Cost,” you will be given a brand new
replacement of that item without any deduction for depreciation.
REDUCING COVERAGE TO LOWER YOUR PREMIUM
People often make the mistake of reducing the amount of
coverage in an attempt to bring down their premium. A better approach would be
to carry strong coverage and simply raise your deductible. You still have a
lower premium and you get to keep your robust coverage. For example, in the
event of a large loss, you will only be “out of pocket” a deductible of, say,
$1,000 or $2,500 – instead of being out $175,000 to replace all the contents of
your home.
THINKING YOUR POLICY WILL COVER SOMEONE ELSE’S PERSONAL
PROPERTY
If you are renting out your home and those occupying it
experience a loss to their personal property, your “landlord” policy will not
cover this loss. Your tenants need to have her/his own renter’s policy to cover
their personal property and liability.
NOT GETTING THE “PROS” INVOLVED
Insurance can be complicated, and when you’re purchasing
coverage for your most important asset, you want to make sure you have the
coverage you need. Agents are required by their state to be licensed and
continually educated on all aspects of insurance. They can communicate the
important details to you, so you can make an informed decision. Second, agents
can compare differences in price and coverage across many companies. Third,
when you act on your own, without an agent, you are also on your own if you
make mistakes in your coverage. Last, most agents sell many types of insurance
policies so you can easily purchase home, auto, life, and much more in one
stop.
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