Mistakes homeowners make when buying insurance & how to avoid them
When it comes to buying home insurance, there are a few mistakes that are easy to make. From underinsuring your home or belongings to expecting coverage for things that simply aren’t included in your policy, we’re here to help you avoid these mistakes so you can be confident in your coverage when the unexpected happens.
Basing your policy limit on your home’s market value
When you’re buying a home insurance policy, you might think it makes sense to base your coverage limit on the market value of your home. But in reality, the cost of the materials and labour required to rebuild your house could be significantly higher than its market value – so you could be left underinsured in the event that your home is destroyed and needs to be rebuilt.
Avoid potential financial trouble down the road by insuring your home based on the cost to rebuild instead of on its market value. On the flip side: If you live in an area where market values are high compared to the cost to rebuild, you could be paying for more coverage than you really need. Your home insurance broker can help you determine what limit is right for you.
Assuming your policy automatically covers water damage
While most standard home insurance policies do cover some types of water damage (caused by things like burst pipes or malfunctioning appliances), damage caused by water that enters your home from external sources (during a heavy rainfall, a quick spring thaw, a sewer backup, or a sump pump failure, for example) is generally not covered. However, you may be able to purchase additional water damage coverage to protect you in the event of these increasingly common events. Contact your broker to find out if additional water coverage is available to you.
Undervaluing your personal belongings
Even if you consider yourself a minimalist, your belongings could be worth a lot more than you think when you add them all up — and if you set your coverage limit too low, you could find yourself unable to replace essential items following a loss. This is where a home inventory system comes in handy. Once you’ve completed a detailed home inventory, you can determine how much it would cost to replace everything in your home and set your personal belongings limit accordingly. Plus, there are certain high-value items that might also require special coverage regardless of your policy limits, so be sure to get those covered, too.
Choosing a deductible you can’t afford to pay
In an insurance policy, the deductible is the amount you agree to pay out of your own pocket before your insurer will step in and pay the remaining balance of a claim (up to the limit in your policy, of course). When you’re shopping for home insurance, you’ll probably notice that choosing a higher deductible generally leads to a lower premium – but it’s important to choose a deductible you’ll actually be able to afford to pay. Even though a lower deductible might mean your premium payments are slightly higher, that might be easier for you to manage than paying a larger lump-sum deductible in the event of a claim.
When choosing your deductible, be sure to consider your financial situation and think about how much you will be comfortable paying out-of-pocket if you ever need to make a claim. While choosing a lower deductible might mean your premium payments are slightly higher, that might be easier to manage than paying a larger lump-sum deductible if you ever need to make a claim.
Source: Written by Stephanie Fereiro for economical.com