New homeowners are probably aware they need home insurance, but deciding what policy is best for their recent financial investment can prove challenging. No one wants to end up with a policy that does not provide as much coverage as they really need or is more expensive than they should have to pay.
So how do you decide what is the right amount of coverage for you? The best thing is to start with what not to do. Chastain Otis Insurance is here with some of the most expensive mistakes to avoid when shopping for home insurance:
1. Under-Insuring your Home
People often want to buy the least amount of coverage because it is the most affordable. In the end, your mortgage company is only concerned with protecting their asset. For example, if your home is worth $200,000, but you only owe $50,000 to the mortgage company; your mortgage company will only require you to purchase $50,000 in insurance.
But what if you have a total loss? You will receive a check for $50,000 and it will go straight to the bank. Not even a dime for you to cover the rest of the house.
What should you do instead? Buy enough coverage so you will be able to completely rebuild your home AND replace your possessions, in the event something tragic happens like a house fire.
2. Not Understanding Exclusions to your Policy
Take the time to understand your policy. Your homeowner’s policy is meant to protect you in the event of a major or even somewhat-major disaster. It does not work like a warranty plan. And every policy is not the same.
3. Only Focusing on Price
When you are shopping for insurance, one of the first things you do is compare prices. Make sure the policy is not cheaper because important coverage is removed or stripped down.
4. Thinking Your Policy Will Cover Someone Else’s Personal Property
Tenants need to have their own renter’s insurance to cover their personal property and liability. If you are renting out your home and those occupying it experience loss, your policy will not cover their loss. (Important note: if you are regularly renting out a room, or your entire home, you also may not have coverage for your property)
5. Assuming Flood Insurance is Included
Many are not aware that homeowners insurance does not cover flooding- something we’ve previously talked about. Flood insurance covers your property and/or contents against storm surges and flooding during torrential rains, hurricanes, and tropical storms.
Be sure to also consider what other types of risks are needed for your location and specifically ask for a policy that covers this in addition to the common risks.
6. Purchasing a Policy for the Wrong Occupancy
Who is living in your home directly determines the type of policy you should have? There are different policies 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. If the occupancy in your home changes, be sure to update your policy, or your claim may not be covered.
7. Reducing Coverage to Lower Your Premium
Another mistake people often make is reducing the amount of coverage to try and bring down their premium. The risk here is if you reduce coverage too much, you can inadvertently change your policy to an “Actual Cash Value” policy (see #8). The better approach would be to carry strong coverage and instead raise your deductible. You will still have a lower premium and you get to keep robust coverage.
8. Choosing “Actual Cash Value” over “Replacement Cost” Coverage
When experiencing a loss, Actual Cash Value will only provide you reimbursement for the “book value” of the item. In many cases, an old computer, couch, or table that is currently next to you would receive next to nothing. If instead, you choose Replacement Cost, you will be given a brand-new replacement of that item without deduction or depreciation. This goes for the Home as well as your Personal Property. An “Actual Cash Value” policy will deduct depreciation from the claim settlement.
9. Failing to Let Your Insurer Know When You’ve Gone through Various “Life Changes”
Insurance companies have refused coverage because people have failed to mention a change in the household—such as a remodel. Do not be afraid to call your insurance agent to give them an update, they are there to ensure coverage and that all your needs are being met.
10. Not Getting the Professionals Involved
Insurance can be complicated, and when you are trying to cover your most important asset, you want to get it right the first time! Our agents at Chastain Otis are all licensed and independent agents, so they not only know their stuff, but they can shop around for you! Remember: Homeowners Insurance policies are NOT all the same.