Running — or buying — a home can be so overwhelming at times that it’s easy for homeowners, especially first-time homeowners, to give little more than a passing thought to the process of buying homeowner’s insurance. But, if something happens to your home, having good insurance can make or break you.
Before you sign on the dotted line of your home insurance policy, keep reading!
8 key considerations when buying homeowners insurance
- Coverage: Be sure your policy covers the most common claims — property damage, liability protection, personal property, and living expenses if your home is uninhabitable.
- Deductible: Higher deductibles may result in lower premiums but may increase the financial burden in the event of a claim.
- Policy limits: Check the policy limits to ensure that the coverage is sufficient to cover the cost of rebuilding or repairing the property in case of a loss.
- Exclusions: Be aware of any exclusions in the policy, such as floods, earthquakes, floods, or other natural disasters, which may not be covered.
- Premiums: Compare premiums from different insurance companies to find the best coverage at an affordable price.
- Insurer reputation: Research the reputation of the insurance company you’re considering working with, including its financial stability and customer service history.
- Discounts: Ask if you can save money with multi-policy bundles or by installing safety features like smoke detectors or security systems.
- Regular reviews. Make sure your policy is up to date and covers any changes to the property and/or the people living there.
8 mistakes to avoid when buying homeowners insurance
It’s not just about knowing what to look for when shopping for home insurance. You also need to know what not to do. Here are 8 mistakes you’ll want to avoid while shopping for insurance.
Mistake 1: Making decisions based only on price
Don’t be lured in by the cheapest policy. Either it won’t provide acceptable coverage, or it might have high deductibles, exclusions, or lower policy limits that could leave you underinsured and unable to fully recover from a catastrophic loss. You need to find a balance between price and coverage to ensure that your home and family are adequately protected.
Mistake 2: Getting the occupancy classification wrong
Occupancy matters! A policy designed for a primary residence does not cover tenant liability or loss of rental income. Likewise, a policy designed for a rental property may not cover the full replacement cost of a primary residence.
Each situation has its own risks and price tag. If you don’t accurately disclose the occupancy status, you could end up underinsured or uninsured. And make sure that you keep it updated, especially if your home’s usage changes.
Mistake 3: Skipping over exclusions
Exclusions are the circumstances that a policy won’t cover. They vary widely between insurance companies, so read and understand your policy’s exclusions carefully.
For example, you might think that your policy covers expenses of running a business out of your home and that a desktop computer damaged in a fire and your subsequent loss of income will be covered. If you don’t understand the exclusions, you might not know to ask about additional coverage or a commercial insurance policy.
Mistake 4: Thinking flood insurance is baked in
Typical home insurance policies don’t cover damage caused by heavy rain, storm surges, or overflowing rivers. Without a separate flood policy, you may have to pay out-of-pocket to repair or replace your property.
Note that flood insurance may be required by your mortgage lender. And there’s usually a 30-day waiting period before coverage kicks in, so don’t wait until the last minute — especially if your home is in a flood zone.
Mistake 5: Underinsuring your home
Repairing or rebuilding a damaged home always costs more than you’d expect. Underestimated those costs — or the cost of replacing belongings — and you may not have enough coverage to restore things to pre-loss condition.
Imagine your home’s market value has increased, or you’ve done renovations, but you never updated the policy to reflect the current value. If a fire destroys the building, you’d only be covered for the insured amount, not what the property is really worth.
Mistake 6: Reducing coverage to lower your premium
This mistake can leave you without enough protection to cover the total cost of repairing or replacing your home and personal property. Instead of reducing coverage to lower the premium, try carrying stronger coverage and raising your deductible.
Other ways to lower premiums include bundling home and auto policies, installing safety features in your home, or improving your credit score.
Mistake 7: Choosing actual cash value to lower your premium
Choosing “Actual Cash Value” over “Replacement Cost” coverage can leave a huge gap when it comes to making a claim. Let’s say your five-year-old television is stolen and has actual cash value coverage; you’ll only be reimbursed for the TV’s depreciated value. With replacement cost coverage, you can buy a brand-new one.
Even with higher premiums, opting for replacement cost coverage is generally recommended to ensure better protection.
Mistake 8: Assuming a visitor’s personal belongings are automatically covered
Home insurance typically covers the policyholder’s property and liability for damages or injuries to others, but it usually won’t protect the personal belongings of others.
For example, if your neighbor is visiting and someone steals their bicycle from your garage, don’t assume your insurance will cover replacing it. Similarly, if you’re a landlord, your policy may not cover your tenant’s stuff if it’s damaged or stolen. The tenant should purchase their own renter’s insurance to be fully covered.
Have A Pro Help You
Make no mistake about it; it helps to have a professional insurance vetter help you decide on the right home insurance policy, whether you’re switching insurers or buying a new home.
Connect with the Guided Solutions team today to learn more about what you can do to make sure you’re doing all the right things based on insurance needs.