No one distributes an owner’s manual for buying home insurance. The process can be confusing, and even veteran homeowners can make mistakes – especially when there’s a rush to secure coverage before your closing date.
Relax; there’s help right here. We’ve identified some of the most common mistakes homeowners make when buying insurance for what’s usually their largest investment. Consider these issues when you need coverage for a new house – or even when renewal time comes for your existing policy.
Jumping at the first quote
You probably didn’t buy the first home your real-estate agent showed you. You shouldn’t buy the first home insurance policy you see, either.
Why? Premiums – the amount you pay for coverage – can vary widely among providers, and you may be able to save big by getting quotes from a number of providers before you make your final choice. This is just as true when you renew your policy – loyalty can sometimes hurt you when it comes to a home insurance policy.
Messing up your dwelling coverage
What’s dwelling coverage? It’s the part of your home insurance policy that helps you if your house is damaged or destroyed by fire, wind, hail, or another covered peril. You should set this coverage limit high enough to rebuild your house from the ground up.
This likely will not be the same as the amount you paid for the house. It could be higher – say building costs have increased in your area. It could even be lower – you don’t have to repurchase the lot, after all.
So how do you know the right number? Check out our dwelling coverage calculator: By entering your ZIP code and the square footage of the home, you’ll get three estimates of the dwelling coverage you need – one with standard building materials, one with some upgrades, and one with top-of-the-line features. Speak with an agent to nail down the correct amount of coverage for your home.
Failing to cover high-value possessions
The structure of your home isn’t the only thing protected by standard home insurance. Your possessions typically are covered from the same perils as the house itself – up to your coverage limit. Policies typically limit coverage for your ‘stuff’ to a percentage of the amount of dwelling coverage you purchase – usually 50% to 70%. That means if your dwelling coverage limit is $200,000, you probably would have somewhere between $100,000 and $140,000 worth of coverage for your possessions.
There’s a potential ‘catch,’ however. High-value items such as jewelry, artwork, furs, and some collectibles can have ‘sublimits’ – or limits within your overall coverage. If your policy has such sublimits, you may need to schedule an endorsement to make sure those items are covered fully.
Choosing a deductible that’s too low – or too high
Your deductible is the equivalent of a co-pay in health insurance: It’s the amount you agree to pay toward a claim before your home insurance kicks in. In general, the higher your deductible, the lower your premium. However, increasing your deductible does come with risk. You could be left uncovered if you can’t come up with that amount in an emergency.
Providing bad or incomplete information
Your insurance agent will ask a lot of questions about you and your home when he or she sets up your policy. It’s not because the agent is nosy – much of the information is to determine your risk as a policyholder – the lower the risk, in general, the lower your premiums.
Among the things you’ll be asked: Do you operate a daycare or any other business out of the home? Do you have a swimming pool? Or a trampoline? Do you own a dog? Answering yes to any of these questions can raise your premiums, because it can increase your risk (especially if your dog is among the breeds considered dangerous).
So why not lie? Because false answers could void your coverage and leave you on your own if you’re sued because a customer or client got injured at your home. Or if a visitor – even a trespasser – became injured using the pool or trampoline. Or if someone gets bitten by your dog. The average payout for a dog-bite claim is $27,862, according to the Insurance Information Institute. You don’t want to face that on your own.
Another reason for all the questions is to determine whether you qualify for discounts. You’ll be asked about whether you have deadbolt locks, a security system, or smoke alarms. Answering yes could result in price breaks. One warning: Discounts vary widely by state and provider.
Dismissing important add-on protections
Standard home insurance typically covers your house against a number of disasters – fire, wind, hail, and others. But it does not protect you from flooding, earthquakes or other earth movement (such as sinkholes), or sewer backup. Think carefully about whether you need these coverages when you buy a policy – saving a few bucks now won’t seem like such a bright move when two feet of water cover your home.