Home insurance is designed to protect your home and your belongings should the unexpected take place. It can cover the costs of repairs to your property, as well as other unforeseen expenses, should your home or possessions be damaged, lost, or stolen.
While this type of insurance is understandably important for homeowners, many unwittingly make mistakes when choosing or managing their insurance policies. These pitfalls can lead to insufficient coverage or additional, unexpected costs, mitigating the potential benefits of having home insurance in place.
Here are the most common home insurance pitfalls that you should avoid to optimize your coverage and protect your investments.
Selecting Market Value Coverage
There are two main ways to determine the value of your home on your insurance policy. You can value it either at its market value or its replacement value. The market value is the book value of your home, but this amount may not be enough to cover the costs of extensive repairs or rebuilding.
The market value of a property fluctuates over time according to economic and real estate trends. These market values may not always align with the cost of rebuilding your home. If you take out a home insurance plan on your home’s market value, you may end up under-insured and unable to cover the costs of rebuilding should significant damages take place.
Avoid this common mistake by selecting replacement cost coverage instead. This type of home insurance coverage will ensure that you will be paid out enough to rebuild your home at a similar quality and with similar materials to your existing dwelling. Speak to your home insurance provider about replacement cost coverage to ensure that you are properly protected.
Undervaluing Your Possessions
Many home insurance policies will cover both your home and your personal belongings. However, many homeowners mistakenly miscalculate or undervalue their possessions. This common pitfall can result in insufficient coverage, leaving you in a position where you will have to pay partly out of pocket to replace or repair your belongings should they be damaged.
You can avoid making this mistake by creating an accurate inventory of all of your belongings covered by your policy, as well as how much it will cost to replace them. If you own any particularly valuable items, it’s a good idea to take out additional coverage for them. Remember to update your policy frequently as well. This will ensure it covers all your possessions, including any new items you’ve purchased after taking out the initial insurance plan.
Forgetting to Update Your Policy
Many homeowners forget to update their insurance policies on a regular basis. While you may think your existing coverage is adequate for your needs, it’s critical to update your policy, especially after home improvements or renovations. If you install a solar power system, upgrade your kitchen or bathrooms, or add extra floor space to your home, these efforts can all significantly increase its value. If you don’t update your home insurance accordingly, you may end up with insufficient coverage for these add-ons.
Avoid this mistake by always notifying your insurance carrier about any renovations, improvements, or changes you make to your home. This simple action will keep your policy up to date and ensure that it reflects and covers the true value of your home.
Choosing an Excessively High Deductible
When you choose an insurance policy, selecting a plan with a high deductible often reduces your monthly premiums. While this may make your policy seem more manageable from month to month, you need to be sure that you can pay this deductible in full when submitting a claim to secure the funds you need for repairs or rebuilding. If you cannot cover the deductible, your claim may not be approved.
You can avoid this pitfall by choosing an insurance plan with a deductible you can confidently cover when you need to make a claim. If possible, consider setting this deductible amount aside in a savings account to further streamline the process of submitting your claim.
Not Considering Your Policy’s Limitations
Most home insurance policies will carry certain limitations and exclusions. Many also require separate policies for certain events and risk profiles. If you don’t fully understand your policy or forget to consider these limitations, you may encounter unexpected coverage gaps, leaving you to pay for uncovered damages out of pocket.
Avoid these unanticipated costs by closely assessing your policy, including its limitations and the risks, events and damages it excludes. If your state, neighborhood or home is subject to specific risks not covered by your policy, speak to your provider about taking out additional coverage to protect your investments.
Protect Your Home With the Right Insurance Policy
Taking out home insurance is one of the most effective ways to protect your property and possessions against a wide range of risks. That said, making common mistakes like undervaluing your belongings, forgetting to update your policy, and not understanding your plan’s limitations and exclusions can limit the amount of protection that your home insurance can offer you.
Protect your investments and finances by valuing your possessions accurately, choosing replacement cost coverage, updating your policy regularly, and fully understanding exactly what you are covered for.
