March 24th, 2014
Purchasing a home is usually one of the biggest transactions in life. Homes are largely regarded as valuable assets or investments that need protection in the form of homeowners insurance. While most homeowners invest in coverage, too many make mistakes about their policies.
The worst mistake a homeowner can make about their insurance is not investing in it at all. There are many potential hazards to your home and your belongings, and not being protected could mean a financial disaster if something were to happen. While no one thinks their house will be the target of weather damage or theft, it could happen anywhere.
Besides not getting homeowners insurance, the next biggest mistake is not getting enough coverage to pay for the cost of your house if you have to rebuild it. According to one study by Marshall Swift, a building cost data company, two-thirds of American households are underinsured. For many homeowners, the lack of proper coverage may be due to cost. However, it is better to invest in protection than be unable to rebuild your home.
To get the proper amount of coverage, you will need to estimate how much it will cost to rebuild your house. Using a professional home-replacement cost estimator is the best way to determine this figure, rather than a real estate agent. Once you know this figure, you can compare it to your current coverage plan. If you are underinsured, be sure to increase the amount of coverage. Additionally, you should figure out how much it will cost to replace your belongings and get this amount included in your policy.
Foregoing flood insurance
Not all homeowners are aware that the typical homeowners insurance policy does not include flood insurance and it needs to be purchased separately. Homeowners in areas prone to flooding are often mandated to purchase flood insurance, but even homes that aren't in flood plains can be at risk to water damage. Check your current insurance policies and sign up for flood protection right away if you aren't already covered.
Getting the cheapest policy
While you may want to save money, getting the cheapest homeowners insurance policy available is probably not the best way to do it. When you start shopping for an insurance policy, you will need to look at more than just the price. It is possible that you will save money right away, but you could be looking at more out-of-pocket expenses down the road when you need to file a claim.
"You need to ensure that your policy covers all of your home and its belongings at the replacement cost, not at the actual cash value," Ben Saine, product management director of homeowners insurance at insurer USAA, told MSN. "For example, if your insurance policy only covers your roof at actual cash value and it's damaged in a storm, the insurance company would only pay the depreciated amount for your roof. This means you may be stuck paying thousands of dollars out of pocket to replace your roof."