Items New Homeowners May Not Understand About Insurance

Did you know there can be issues with insurance that new home buyers or homeowners are not aware of and they can be a costly mistake.

Purchasing a home is one of the biggest commitments the majority of us will ever make and in most cases it is our biggest asset. While most new homeowners are aware they need to protect their home with a homeowners insurance policy, there can be issues with insurance that new homeowners are not aware of and they can be a costly mistake.

Let’s have a look at just a few of the issues that new homeowners should be aware of when it comes to homeowners insurance.

Flood and Earthquakes Not Covered

Almost nobody reads their entire insurance policy and it’s easy to forget that a standard policy does not protect against all perils your new home may face. This is especially true when it comes to flood and earthquake damage. A standard homeowners policy does not cover any damage that is the result of flooding or an earthquake.

This can be a very expensive oversight if your home is damaged, made unlivable or destroyed due to a flood or earthquake. If your new home is located in a flood or earthquake prone area you must carry a separate rider or flood insurance policy to be fully covered.

While earthquake insurance is fairly affordable, flood insurance can be expensive especially if you live on the coast or in a high-risk area. Check with your insurance agent in regards to what type of policies you need to be fully protected.

High Value Items Come with a Limit

Another factor that is often overlooked when shopping for homeowners insurance is that there are limits on high value items. Artwork, jewelry, firearms, collectibles and even wine or cigars can be subject to a limit on your homeowners insurance.

If you have an extensive collection of jewelry or other high value items, you will need to purchase a rider to full cover your valuable property. While the limit will vary by insurance company, in most cases, the cap is set around $1,000 to $2,000 which means that your insurance company will only pay out that amount if you need to file a claim due to a loss, regardless of how much your property was valued at before the loss.

It is possible to buy a rider to up your coverage for high value items. Prices will vary but in most cases it is pretty affordable. Contact your insurer if you need additional coverage for your high value items.

Not All Insurers are Created Equal

While price is definitely a factor when it comes to homeowners insurance, it shouldn’t be the only consideration when looking for a policy. Many new homeowners neglect to shop their coverage and simply go with an insurance company recommended by their realtor or using the same company that insurers their cars.

This can be a mistake. Insurance companies rate risk differently and some specialize in certain types of properties so shopping your coverage can literally save you hundreds or thousands of dollars a year. Experts recommend getting quotes from at least 7-8 different insurance companies.

Read reviews and check on their financial strength as well to ensure you will be paid quickly and fairly if you need to make a claim on your policy. A cheap policy is not a bargain if you have to hound them to pay a claim or deal with a less than honest adjuster. Ask friends and family for recommendations and read reviews of any insurers you are seriously considering.

Simple Upgrades Can Save Money

Discounts are a major factor when it comes to homeowners insurance, just like auto insurance, and you can make a few simple upgrades to your new home that will help save some money on your premium.

Adding a monitored alarm system can result in up to a 20 percent discount on your insurance premium. Even adding a deadbolt to your front door can shave a small amount off of your insurance bill. If you have a pool, adding a fence and a cover will result in a discount as will cutting back trees close to the house if you live in a forested area.

Ask your agent or insurance company to run a discount check to make sure you are getting all of the home insurance discounts you are entitled to receive and if there are any small improvements you can make to your home to lower your premium.

Replacement Value Vs. Actual Cash Value

This can be a tricky one if you don’t understand the difference between replacement value and actual cash value. While an actual cash value policy will be cheaper than a replacement value one, it can cost you in the long run.

Replacement value policies will replace your lost property regardless of cost while an actual cash value policy takes depreciation into account. As an example, if your 10 year old TV was destroyed, a replacement value policy would pay for a new TV of the same size and quality, despite the fact that your destroyed TV was 10 years old and probably worth a fraction of what a new TV costs.

An actual cash value policy takes that depreciation into account so you will get a settlement check that will probably not cover the cost of a new TV. Now multiple this by everything in your home and it becomes clear that an actual cash value policy can leave you on the hook for some major expenses if you suffer a major loss.

We always recommend a replacement value policy as they are not dramatically more expensive than an actual cash value policy and in the long run you will save money if you have to make a major claim.