5 common mistakes when buying homeowners insurance
Buying a home is likely one of the biggest investments you will ever make. It's the backdrop for your family's memories, your sanctuary after a long day, and can play a major role in your future financial decisions. That's why it's so important to make sure you have the right insurance coverage to protect it.
Here are some common mistakes people make when purchasing home insurance, why they matter, and how to fix them.
1. Prioritizing the cheapest insurance policy
It's easy to assume that all insurance is pretty much the same. Many people fall into the trap of buying an insurance policy based only on the price and hoping for the best. Just remember, you get what you pay for.
Why it's risky: Buying the cheapest homeowners insurance policy might save you money now, but it can cause big headaches (and bills) later.
The fix: Consider more than just the price. It's okay to look for a good deal, but make sure you check the coverage details and exclusions, and the provider's reputation for handling claims, before making any decisions. A good agent can help you do all of this.
2. Assuming your policy covers everything
This is an important one. Homeowners often think that having a standard insurance policy automatically means their provider will handle any problem that comes up. Unfortunately, that's not true. Most homeowners insurance policies typically don't cover things like:
- Floods
- Earthquakes
- Pest infestations
- Loss of high-value personal items (such as valuable artwork or expensive jewelry)
- Normal wear and tear, or damage caused by neglect or poor maintenance
Why it's risky: You don't want to wait until a disaster strikes to discover that you aren't fully covered. You may find yourself paying large out-of-pocket bills for things you thought you were covered for.
The fix: Talk to your insurance agent to make sure you fully understand your policy's exclusions. You may need to consider purchasing additional coverage, such as flood or earthquake insurance if you live in a vulnerable area.
3. Not including additional structures on your policy
People often forget that home insurance isn't just there to protect your house. There may be other structures on your property (such as a detached garage or greenhouse) that you should think about adding to your policy.
Why it's risky: If you have additional structures on your property that aren't specifically listed on your home insurance policy, you may end up paying to repair or replace them yourself if something happens.
The fix: Make sure that any additional structures on your property are properly covered. Other examples include patios, sheds, barns, gazebos, fences, and greenhouses.
4. Not documenting and updating inventory
After a loss, you may be asked to prove what you owned and its value. This is hard if you don't have records. Many people just assume they'll remember everything. But trust me, you won't.
Why it's risky: Without proof of ownership and value, your claim may be delayed or underpaid. You may end up not getting the full replacement cost, especially for electronics, jewelry, or furniture.
The fix: Create an inventory of all the items in your home. Include photos, receipts, serial numbers, and any appraisals on high-value items. Try to update your list at least yearly (and after big purchases or renovations) and share a copy with your insurance agent. You can find sample inventory templates online, or you can ask your insurance agent if they can provide one.
5. Forgetting about inflation
Over time, the cost of things like labor and building materials will naturally rise. If your homeowners insurance coverage limits stay the same, you may find yourself underinsured. That means you may not receive enough money to cover replacement or repairs after a covered loss.
Why it's risky: Your policy may not reflect current prices, resulting in lower insurance payouts.
The fix: While comparing insurance quotes, check to see if the policy includes inflation protection (or if it can be added).
There are numerous factors to consider when buying insurance. Don't be afraid to ask your insurance agent for help. Their expertise can ensure your protection and your peace of mind.
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