No one ever says purchasing home insurance is easy. Not with all the providers and policy types and savings numbers, not to mention the coverages that are and aren’t included in standard coverages. Mistakes can be made by first-time home insurance buyers and veterans alike. Those mistakes can cost you plenty either in inflated premiums or a policy that doesn’t cover as much as you expect.
Never fear. We’re here to help by detailing some common problems consumers encounter. We’ll identify questions you should ask agents to find a policy that protects your home and fits your finances – whether you’re buying insurance for the first time or renewing coverage you’re not sure about.
Failing to shop around
Insurance providers vary widely in how they assess risk – the primary component in how they determine how much you pay for home coverage. This means your premiums with one company could be significantly higher than with another. It’s imperative to shop several carriers in order to get quality coverage at a price that you’re comfortable with.
And while loyalty is admirable in many things, it can cost you in home insurance. Consumer experts recommend shopping your coverage annually to see whether you can find a better deal. Keep in mind, though, that price should never be the only factor: If your coverage isn’t top-notch, even a cheap premium is a waste of money.
Choosing the wrong amount of coverage
Choosing incorrect coverage can come in more than one form: confusing the replacement cost of your home with its market value and under- or overestimating the amount of contents coverage you need, for example.
Dwelling coverage is what most people think of when they consider home insurance – it’s the part of a policy that pays if your home is damaged by a covered peril such as fire, wind, hail, etc. You need enough dwelling coverage to rebuild your home from scratch. That amount can differ greatly from how much you owe on the home or its market value.
So how do you know how much dwelling coverage you need? Use a home insurance calculator to arrive at a working estimate.
Here’s why it’s even more important than you might believe. The dwelling coverage amount you choose also affects limits for other coverages in your policy. The limit for your contents coverage – the part of your policy that covers your “stuff” if it is stolen or damaged by a covered event – typically is set at 50% to 70% of your dwelling coverage.
If you have $100,000 of dwelling coverage, your contents coverage would fall between $50,000 and $70,000. That sounds like a lot, but it could be a problem if you have a lot of high value items in the home such as art, antiques and/or jewelry or if you simply misjudge the value of your possessions. You may need to schedule an endorsement to raise your limit. The easiest way to determine how much contents coverage you need is to create a home inventory – a complete list of the items you own and their values, with photos and receipts if you have them.
Neglecting to update your policy
Over the course of a policy term, many things can change. You could install a pool or expand your home to accommodate the master bedroom of your dreams. No matter what changes occur, do yourself a favor by notifying your home insurance provider to ensure that you’re adequately protected.
For example, if you renovate your kitchen and add granite countertops or add more square footage to your home and fail to update your policy, you might not have enough dwelling coverage. That means you likely won’t be fully covered in the event of a disaster. Or if a neighborhood child is injured in your new pool, you might face the resulting lawsuit on your own instead of calling on the personal liability coverage typically included in a standard policy.
If you think you’ll save on your premium by forgoing reporting these additions, you’ll be putting yourself at a major risk. Even if you’re just getting a dog, it could be a big deal. Consider this: About 4.5 million people are bitten by dogs each year, and about 885,000 require medical attention, according to the Insurance Information Institute, with the average cost topping $32,000 in 2014. Are the extra few dollars you’ll save per month really worth having to pay someone’s medical bills out of pocket?
Failing to understand your policy’s exclusions
Did you know that flood damage isn’t covered by your home insurance policy? Neither is damage from earthquakes. Every home insurance policy comes with exclusions, and it’s vital that you understand them.
You can usually purchase additional policies to cover specific perils such as flooding. Go over your policy with a licensed agent thoroughly and be sure that you fully understand which perils are covered and which are not.
Setting the wrong deductible
The deductible is the amount you agree to pay toward a claim before your insurance takes over, and it often gets set either too low or too high. Your deductible can be manipulated to help save money on your premium – the higher the deductible, the lower the premium, all other things being equal.
However, if the deductible amount is too high and you can’t come up with it when disaster strikes, your finances could be left askew. If it’s too low, you could pay more than you should in premiums each year. Speak with an expert to strike the right balance.