9 Homeowners Insurance Mistakes
August 16, 2019 - Homeowners insurance (HOI) is so universal, it must be hard to go wrong when buying it, right? Actually, it’s probably harder to get it right. Here are nine common HOI mistakes that occur if you …
- Have insufficient dwelling coverage – Be sure to insure for at least 80% of the cost to rebuild your dwelling if it’s destroyed. This is its replacement cost, not to be confused with your home’s typically higher market value (including the land, utility hookups, etc.). If your coverage is at least 80% of replacement cost, your insurer will cover 100% of a rebuild, less your deductible. If you insure for less, your insurer won’t cover 100%. Especially if your home has appreciated, have your provider periodically reassess replacement costs.
- Live in a flood zone without flood insurance – Basic HOI doesn’t cover flood damage; it’s a separate policy.
- Carry inadequate liability coverage – We suggest carrying maximum available liability – usually $500,000 – should a guest injure themselves on your property.
- Have a low deductible – Low deductibles are expensive given how rarely you should need to pay them. Keep your annual premiums in check with deductibles of $1,000+.
- Don’t shop around – Insurers may offer a “loyalty” discount, but it’s common for an existing policy’s premium to creep up anyway compared to market rates. I recommend a price check every 5 years.
- Don’t add Water and Sewer Backup – Without this important rider, catastrophes from errant water leaks (e.g., a tree root in your sewer line) can cost you big time.
- Aren’t aware of multiple deductibles – Beyond your general deductible, hail or earthquake damage deductibles may be set at 2% of your dwelling coverage. Those separate deductibles can add up fast.
- Are underinsured for valuables – You may have $400,000 to cover personal property, but limited coverage (typically $1,500 max) for valuables such as jewelry, electronics and collectibles. Consider separate riders as warranted.
- Don’t document what you own – If your home burned down, could you prove the worth of what you lost? An off-site photo library or video recording of your possessions should include specifics such as brands and model numbers, and receipts for big-ticket items.
Written by John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™