6 Biggest Homeowners Insurance Mistakes
Homeowners insurance can feel overwhelming. You’ve got to consider coverage levels, special riders, natural disasters, premium rates, the claims process … the list goes on and on.
Navigating the process can feel tricky. And despite the best intentions, homeowners frequently make mistakes that can cost them money or leave them underinsured.
Before you sign up for a policy or change insurance companies, consider these common missteps — and how to avoid them:
Not Getting Enough Coverage
One of the biggest mistakes people make is needing more coverage for their property. Being underinsured means that if your home is damaged, you may not have enough coverage to cover the cost of repairs. This can leave you in a financially precarious position where you may have to pay out of pocket for any damages that your insurance policy does not cover.
It's essential to ensure you have enough coverage for your home and its contents. To determine the amount of coverage you need, experts recommend inventorying your belongings and estimating the cost of replacing them. This will give you a good idea of your coverage needs.
Assuming Natural Disasters are Covered
Insurance policies for natural disasters are often separate from a basic homeowners insurance policy.
For example, if you live in a flood-prone area, looking for flood insurance coverage is essential. Flood insurance is typically offered through the National Flood Insurance Program (NFIP) and can cover damage caused by floods, including damage to your home and personal belongings.
(Pro tip: Flood insurance typically has a 30-day waiting period before it becomes effective, so it's important to plan ahead.)
If you live in an earthquake-prone area, you may need a rider policy to cover earthquake damage. An earthquake rider is an additional insurance policy that can cover damage caused by earthquakes, including damage to your home and personal belongings. Remember, earthquake insurance can be costly, so it's important to carefully consider your options and decide if this coverage is right for you.
Assuming Anything That Can Happen Is Covered
A standard policy may not cover certain risks or hazards in your home.
For example, sewage backups and mold can be expensive to remediate and can cause significant damage to your home and personal belongings. Depending on your insurance company and coverage level, you may need additional coverage or a rider policy to fully protect your home.
Setting Your Deductible Too High (or Too Low)
Your insurance deductible is paid out of pocket before your insurance policy kicks in. Many homeowners make the mistake of setting their deductible too high or too low.
A higher deductible can result in lower premiums, but it also means you’ll have to pay more out of pocket if you need to make a claim. On the other hand, a lower deductible will result in higher premiums, but you’ll have less to worry about if you need to file a claim.
To get the biggest benefit, determine what you can comfortably pay out of pocket for repairs and then raise your deductible.
Loss of use coverage
Personal liability insurance is a crucial component of a homeowners insurance policy as it can protect you financially if someone is injured on your property or if you are liable for damages caused by yourself or a family member. If someone is hurt on your property, they may sue you for medical expenses, lost wages and other damages.
Many homeowners opt for the minimum amount of liability, assuming that is enough, but it may not be. It's important to ensure you have enough personal liability insurance to cover the potential costs of a lawsuit or damages. Many experts recommend having at least $300,000 to $500,000 in personal liability coverage, but the appropriate amount may vary depending on your situation and assets.
Not Considering Whole Home Replacement Costs
The cost of rebuilding your home is different from its market value. Market value is the price at which your home would sell in the current real estate market, while the cost of rebuilding your home is the amount of money it would take to completely rebuild your home in the event of a total loss.
The cost of rebuilding your home can vary based on several factors, including the size of your home, the type of materials used and the labor cost in your area. When estimating the cost of rebuilding your home, consider all these factors and obtain a detailed estimate from a professional contractor or builder.
If your policy only covers the market value of your home, you may need more coverage to fully rebuild your home in the event of a total loss. This could leave you responsible for paying the difference out of pocket, which can be a significant financial burden.
Another homeowners insurance mistake? Not comparing rates. Comparing rates between insurance companies once a year can ensure you’re still getting the best deal possible, and our Homeowners Insurance Comparison tool makes it easy.