When it comes to insurance coverage, consider the advice Smokey Robinson’s mother once gave him, and shop around!
Knowing what to look for is one thing, but it’s just as important to know what NOT to do when shopping for your policy to help you better protect your home and family.
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Only Focusing on Price
It’s one of the first things you do when you’re shopping: look at the price. And similar to anything else you purchase, it’s important to understand exactly what you’ll be receiving with your homeowners insurance as well. Make sure that your “cheap” policy isn’t less expensive because important coverage has been removed or because the company has inadequate reinsurance. Just like you wouldn’t buy something that’s missing pieces from a store, get what you need in your homeowners coverage.
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Purchasing a Policy for the Wrong Occupancy
People own homes for many different reasons: to fulfill a dream, raise a family, or maybe supplement the family budget with rental income. Who is living in your home directly determines the type of policy you should have. There is a different policy for people who own and live in their home as opposed to people who own a home that they are renting, or even people who own a home that nobody lives in. In some instances, your claim won’t be covered if you have the wrong policy based on the occupancy of your home. This is because each of these situations carries its own unique risks and are priced for those risks. If the occupancy of your home changes, make sure to update your policy accordingly.
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Not Understanding Exclusions to Your Policy
Insurance companies have long done away with “all risk” policies, and customers in high-exposure states found them to be cost-prohibitive anyway. Your homeowner’s policy is meant to protect you in the event of a major, or even semi-major, disaster but does not respond as a warranty plan. Take the time to understand from a comprehensive level what is and is not covered.
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Thinking Flood Insurance Is Included
Many people are not aware that a homeowner’s insurance policy does not include flood coverage. Flood insurance covers your property and/or contents against storm surges and flooding during torrential rains, hurricanes, and tropical storms. Flood insurance can be bought through the National Flood Insurance Program. Your insurance agent can help you learn more about whether it makes sense for you. There is a 30-day waiting period required before a flood policy will go into effect, so it is important not to buy this coverage at the last minute.
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Underinsuring Your Home
Your mortgage company is only concerned with protecting their asset. Let’s say you own a home that is worth $300,000, but you only owe $50,000 to the mortgage company. Your mortgage company will only require you to purchase $50,000 in insurance coverage. Obviously, $50,000 in insurance is a lot less expensive than $300,000, but what if you have a total loss? You will only receive a check for $50,000 and it goes straight to the bank – nothing for you!
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Choosing “Actual Cash Value” over “Replacement Cost” Coverage
When you experience a loss, Actual Cash Value will only provide you reimbursement for the “book value” of the item. In many cases an old couch, table, or computer is worth next to nothing so you would receive next to nothing. If you select “Replacement Cost,” you will be given the amount paid to replace property or personal belongings without any deduction for depreciation.
Reducing Coverage to Lower Your Premium
People often make the mistake of reducing the amount of coverage in an attempt to bring down their premium. A better approach would be to carry strong coverage and simply raise your deductible. You still have a lower premium and you get to keep your robust coverage. For example, in the event of a large loss, you will only be “out of pocket” a deductible of, say, $1,000 or $2,500 – instead of being out $175,000 to replace all the contents of your home.
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Thinking Your Policy Will Cover Someone Else’s Personal Property
If you are renting out your home and those occupying it experience a loss to their personal property, your “landlord” policy will not cover this loss. Your tenants need to have her/his own renter’s policy to cover their personal property and liability.
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Not Getting the “Pros” Involved
Insurance can be complicated, and when you’re purchasing coverage for your most important asset, you want to make sure you have the coverage you need. Agents are required by their state to be licensed and continually educated on all aspects of insurance. They can communicate the important details to you, so you can make an informed decision. Second, agents can compare differences in price and coverage across many companies. Third, when you act on your own, without an agent, you are also on your own if you make mistakes in your coverage. Last, most agents sell many types of insurance policies so you can easily purchase home, auto, life, and much more in one stop.