What You Don’t Know About Homeowners Insurance Could Cost You
Most of us don’t spend a lot of time thinking about homeowners insurance. Are you paying too much? Are you adequately covered?
Unexpected damage to your home can be devastating and can take significant time and money to repair. Homeowners insurance can help, but many of us are often misguided on how to properly insure ourselves in the first place.
The National Association of Insurance Commissioners (NAIC), “found that about half of Americans (51%) don’t know that homeowners insurance does not cover damage/loss caused by a flood event.”1
Here are some tips to maximize the benefits of your homeowners insurance:
Decide How Much Insurance to Purchase
Don’t over-insure, and don’t under-insure! Your land value need not be included when deciding how much homeowners insurance to buy. Typically, the land itself is not at risk from extreme weather or theft. The structures that reside on the land and the contents are in danger. If you include land value in your homeowners coverage, you may higher premiums than necessary. Yet, if you underestimate the cost to replace and rebuild, you could end up with insufficient coverage. Be sure to review and update your coverage regularly.
Your Credit Score Matters
Insurance companies typically don’t disclose that your credit score can be a factor that contributes to your premium. The higher the credit score, the lower your premium. Consider providing your insurance company with an updated report each year so any improvements are reflected in your pricing.
Increase Your Deductible When Possible
A higher deductible translates to a lower premium. For example, if the suggested deductible is $500, but you have the ability to increase it to $1,000, your savings can be as much as 25%.2
Consider Using the Same Auto & Home Insurer
By using the same auto & home insurance provider you may receive “5 to 15% off your premium if you buy two or more policies with them.”3 But be sure to shop, as bundling is not always best for everyone.
Cover Your Personal Property
Basic homeowners insurance covers personal belongings, but only up to a certain dollar amount. Most policies provide a set percentage of the total amount of coverage for contents, so be sure that amount is sufficient for your belongings. However, when it comes to extremely valuable items, like your Cartier jewelry collection, a rider may be necessary to provide additional coverage not included with basic homeowners insurance.
Replacement Cost Coverage vs. Actual Cash Value Coverage
When evaluating your insurance options, you’ll need to choose coverage for either replacement cost or actual cash value. Let’s say your laptop is stolen. Replacement cost will generally pay for a new laptop while actual cash value will reimburse you for what the laptop is worth today, which is often depreciated. Although replacement coverage may seem like the better choice, note that it is usually more expensive. So be sure to evaluate the pros and cons.
Evaluate your Liability Protection
Homeowners insurance typically provides liability coverage when someone not living with you is injured while on your property. If a visitor falls down the stairs in your home, bodily injury liability coverage may help cover any medical bills or legal expenses you could incur. You may be able to increase your liability coverage limits by adding a personal umbrella policy. Be sure to inquire about available options.
Homeowners insurance is complex, so do your homework, talk to an expert, and weigh your options.
1NAIC, 2019, “Don’t Wait for a Flood to Check Your Insurance Coverage,” content.naic.org/article/news_release_dont_wait_flood_check_your_insurance_coverage.htm
2III.org, “Twelve Ways to Lower Your Homeowners Insurance Costs,” https://www.iii.org/article/twelve-ways-to-lower-your-homeowners-insurance-costs