The Pitfalls of Homeowners Insurance

By Stacey Carroll, Write W.A.V.E. Media Contributor

When switching from renters to homeowners insurance or choosing a new homeowners policy, it’s important to understand the details of the policy as well as the cost. In general, homeowners insurance protects you against financial loss in the event of fire, theft, vandalism and covered natural disasters (rain, hail, lightening and wind). It doesn’t normally protect against floods. To be fully protected in the event of a flood, a separate flood insurance policy is generally required.

Homeowners Insurance Pitfalls and Mistakes

While homeowners insurance is designed to protect you against financial loss in the event that your home is damages by a covered event, it is important to read the details of the policy, including any specific exclusions, coverage amounts and the deductibles.

Exclusions

Along with floods, there are specific things that most home insurance policies do not cover, including mold and mildew damage, roofing replacements caused by the roof being past its useful life, sewerline backups, sinkholes on your property or under your home that damage its structure, insect damage, especially termites and carpenter ants and acts of war, including bombings, explosions and fire. If you expect to incur any of these damages, it may be best to purchase a home warranty along with your homeowners policy or explore other financial options that would provide you with extended coverage for the repair or replacement of your home in the event that your homeowners policy specifically excludes the cause of damage.

Coverage Amounts

The amount of coverage you choose for your homeowners policy should be an amount that would cover rebuilding your home or purchasing a similar home. Choosing lesser coverage amounts can save you money on your monthly home insurance premiums, but if your home were destroyed, you may not be able to afford the repairs or the purchase of a new home. If you purchase an amount that is higher than your home’s value, you may not see that entire amount. This is because insurance companies typically only replace the current value of your home just prior to the unforeseen disaster that damaged your home.

Deductibles

Homeowners insurance policies come with deductibles, and it is extremely important that you choose a deductible that you can always afford. This is because insurance companies will pay you for the repairs or the replacement of your home minus your deductible.

For example, your home was burglarized and the criminals took $5,000 worth of valuables. If your deductible is $10,000, you would be responsible for replacing those items with your own financial resources. If your deductible were $1,000, your insurance company would pay you $4,000 for your loss, and you would pay $1,000 towards the replacement of your items.

When you choose a homeowners insurance policy, make sure you do more than scan the monthly premium amount. Before you make a purchase, you should ensure that the items you want covered are covered under the policy and that the policy covers the types of damage you may incur during the time you live in the home. If you can’t find an insurance policy to cover certain causes of damage or critical system failures, you will want to purchase additional insurance coverage, like flood and earthquake damage and consider purchasing a home warranty if you are buying a new home.

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