What Are the Most Common Misconceptions About Homeowners Insurance?
A homeowners insurance policy is a vital part of homeownership as it serves as financial buffer for the unexpected. Unfortunately, misconceptions about what it does can lead to decision errors that might prevent you from reaping the full benefits of a homeowners insurance policy.
You deserve your money’s worth.
Beware of these most common misconceptions about homeowners insurance.
Your homeowners insurance policy answers for all damage to your property
A standard homeowners insurance policy pays for the cost of repair or rebuilding your home after damage due to fires, lightning strikes, windstorms, and hail, among others. However, it does not cover damage caused by flood, earthquake, power failure, nuclear hazard, war, or normal wear and tear.
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Coverage for these typical exclusions can either be purchased separately or via an endorsement to the policy you have now.
If you live in areas known to be prone to natural disasters such as earthquakes and floods, you are usually required to get policies that answer for these risks.
In the case of hurricanes, damages caused by wind are usually covered but no compensation will be given for flood damage unless you have a separate policy for this.
Check with your local government office to learn about disaster risk in the area you’re living or planning to move into.
The compensation will be based on the market value of my house
The market value of your property usually includes the value of the land which is not covered in a typical homeowners insurance policy. The value of your properties that will be used by the insurance company in the event of claims is either:
a) the actual cash value of the property
In the event of damage, the insurance company will compensate you for the cost of what is destroyed via the approximate equal replacement cost less the cost of depreciation
b) replacement cost of the property
In the event of damage, the insurance company will pay for the cost of replacing what was lost with a new or similar one up to the cost of the coverage’s cap amount.
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Compensation will cover the full coverage amount after deduction
Typical standard homeowners insurance policies require that you insure at least 80 percent of your property’s replacement value. That means if you choose to get a coverage of over 80 percent of the replacement value of your property such as your home, you can get a full reimbursement of the damage amount of the property up to your total coverage amount. So this may be plausible depending on what you choose.
All personal properties lost will be compensated
While this is certainly possible, there are certain challenges to this.
First is the limited coverage of your standard homeowners insurance policy as mentioned above, unless you’ve purchased some other policies separately to cover for all other risks comprehensively.
Second, certain property types come with special coverage limits and your insurance typically carries actual cash value coverage by default.
Third, you have to provide proof of ownership of all properties in the form of receipts or an inventory of all your items with the products’ serial numbers.
A homeowners insurance policy is not a blanket solution to the risks of homeownership. However, a proper coverage will certainly help you meet your financial needs in case of emergencies. Make sure you are adequately covered and be prepared with a comprehensive inventory of your most valuable possessions.