Homeowners Insurance

Pitfalls to avoid with Homeowners Insurance

Homeowners insurance provides a financial security blanket for people who own a house, particularly when there is a mortgage on the house.  There are some dangerous pitfalls associated to homeowners insurance that you can avoid, if you know what to look for.  Don’t be caught off guard if an accident or disaster strikes and you don’t know the details of your insurance policy.  Getting good insurance coverage is a simple process, but there are a lot of common mistakes you can make that have the potential to complicate the situation.

  1. Your insurance agent is paid on commission.  Just like your financial advisor and the guy at the cell phone store, your insurance agent gets paid on commission.  They might try to talk around the matter or flat out lie to you, but the truth is you need to exercise caution to make sure you get the coverage you need, rather than the coverage that makes them the most commission.
  2. Find a good agency, and a good agent.  Guido’s Home Insurance might have the lowest rates, but are they really legit?  Go with a carrier you know will be able to pay a claim should one arise.  And while you’re at it, pick an agent you like.  Ask your friends and co-workers for recommendations.  After all, since you’re paying his commissions you might as well like the person.  Having a good agent will also simplify and expedite and claims you may have down the road.
  3. Don’t lie about anything!  You might be tempted to get a lower rate by omitting the fact that you have a trampoline or a dog that likes to bite.  No harm done right?  Wrong!  If you lie on your application and a claim arises, you will be out of luck and out of cash.  This is also known as insurance fraud.  Sounds bad, right?  It is.  Your company will find out, deny your claim, and you’ll be left paying the bills for whatever happened by yourself.
  4. Know your coverage.  Does you live in a region susceptible to floods?  How about earthquakes or tornadoes or hurricanes?  If so you might need special insurance riders to cover these specific natural disasters.  Check with your agent to find out what inclusions your policy has, and what is specifically excluded.
  5. Don’t under insure your home.  Your mortgage company will typically require that you have enough insurance coverage to pay off the mortgage loan, but make sure you buy enough to cover the replacement value of your house.  If disaster does strike, you want to be able to replace your house as it was, not half the size it was.  Be aware that if you’ve lived in your house for a long time, the reconstruction costs could have inflated substantially, so make sure you have enough coverage to rebuild.
  6. Understand the difference between renters insurance and homeowners insurance.  Many homeowners policies only cover the structure and dwelling of the home, not the contents.  The contents (furniture, appliances, clothes, etc) of your home are typically covered in a renters insurance policy.  If your homeowners policy doesn’t cover your stuff, make sure to add an inexpensive renters policy as well.
  7. Know your deductible.  The higher your deductible, the lower your premium.  Make sure you’re comfortable with the trade-off.  You don’t want the deductible to be too low or you’ll be overpaying each month.  But if it’s too high you might not be able to afford it when you need it.

Owning a home can be exciting, but it’s also very scary if problems arise.  Make sure you are aware of the common pitfalls so you can avoid them and enjoy the peace of mind that comes with knowing you are sufficiently covered should disaster strike.

 

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