5 Ways to Guarantee Your Home Is Properly Insured

If you own a home, hopefully you own a homeowners insurance policy. But what you don't know about your coverage can cause you problems.

Indeed, it is a mistake to think that your policy protects you against everything that can happen to your home and your personal property, not to mention your family members and friends who visit.

Here are five big pitfalls that can affect your homeowners insurance coverage, and what you can do to overcome each.

Pitfall #1: Not Understanding Your Coverage

Some homeowners insurance policies guarantee to replace your house if fire or some other event destroys it, no matter the cost. Some cover such a loss only up to a certain limit, possibly with increases to reflect inflation.

Make sure you understand exactly what kind of coverage your particular policy offers. Let's say you've kept a policy that covers $300,000 worth of your home and personal property for the past 10 years, and you now have more valuable appliances, jewelry, tools, or lawn equipment. If something happens to your home tomorrow, are you okay with receiving a smaller-than-needed claim amount to replace your things? Or should you upgrade your insurance to a larger policy that can replace your more expensive assets?

Pitfall #2: Low Coverage

When it comes to liability coverage, many homeowners buy only what their insurer offers them, usually only $100,000 in coverage. This can quickly prove inadequate in the event someone sues you for bodily injury or property damage -- say, a litigious neighbor who slips and falls on your doorstep.

One solution may be to ask your agent for umbrella liability coverage of $1 million or more, depending on your circumstances. The extra coverage won't cost much -- typically $200 per year, though premiums can run to $350 in some areas.

Pitfall #3: Insufficient Personal Property Coverage

The standard homeowners policy typically insures you against the loss of personal property in an amount equal to half the insured value of your home. Thus, if you have $250,000 in coverage on the structure itself and the house burns down, you'll get $250,000 to rebuild and up to $125,000 to replace the personal property inside.

For most people, this is reasonable coverage; if you spend $250,000 buying your house, studies show that you'll probably spend half that in furnishings and other personal property. But such coverage may well prove inadequate if you collect valuables of any kind -- say, old coins, paintings, Persian rugs, even old tools.

The solution is two-fold. First, undertake a complete written inventory of the contents of your home. Match the written inventory with photographs and, if possible, with sales receipts or appraisals. Keep this evidence in a safe place -- in a safe deposit box, for example -- and update it every year, or whenever you make a major purchase.

Second, buy "floater" insurance coverage itemizing your valuables. Floater coverage increases the claimable loss to the full value of the items and also covers loss by any means, not just theft.

Pitfall #4: Insufficient Natural Disaster Coverage

If you live in an area prone to natural disasters, your homeowners policy may not cover some losses. In fact, most standard plans don't include coverage for flood or earthquake.

Wind events, including tornadoes, are typically covered under a homeowners policy, but it won't hurt to double check to ensure your coverage is adequate in the event of a tornado. Even if you don't live in "tornado alley" -- from northern Texas to eastern Nebraska -- it's still a good idea to review your policy. As climate change continues to wreak havoc across the world, there's no estimating how far east and west the tornado radius will extend in the future.

If you live in a flood zone, you can solve the problem by purchasing separate flood insurance from the federal government's flood insurance program through the agent who sells you homeowners coverage. Your agent can also sell you separate coverage against earthquakes and other natural disasters.

Pitfall #5: Lack of Mold Coverage

The standard homeowners policy covers losses that happen suddenly or are accidental in nature -- for example, a fire, or damage caused by a burst pipe in the basement. But you are unlikely to get help from your insurer if you find mold growing in the walls of your house, because the standard homeowners insurance policy typically doesn't cover mold.

Policies will, however, cover mold remediation if it is a result of another claim. For instance, insurance will usually cover mold removal if it comes after a basement pipe burst. You can also purchase an endorsement on your homeowners policy to cover mold damage not caused by another disaster in order to protect yourself.

Take some time to realistically add up the value of your home (see your most recent appraisal valuation) and the assets inside it, look at what your current policy covers, and ask yourself if you can live with what the insurance company would give you if your house went down in flames tomorrow (hopefully not!). If this makes you sick to your stomach, ask your insurance agent to form up a new plan that will help you sleep better at night. 

More great reading on homeowners insurance: 

What's even better than earning rewards for spending on your credit cards? Getting paid hundreds of dollars worth in sign-up bonuses in three months or sooner -- just for trying out a new card.Wh...
by Christian Hudspeth Tired of dragging credit card debt around with you? Taking 15 minutes to transfer your debt to a credit card with generous balance transfer perks could save you thousands in...
If you're going to spend money anyway, then why not get paid for it?Whether you're looking for credit cards with up to 6% cash back, double flight miles, or even a free hotel stay each year, ther...
by Christian HudspethIn times where interest rates are on the rise, you may start hearing financial advisors and bankers sing the praises of an income strategy called "CD laddering" (short for ce...
Those of us familiar with selling property know real estate agents don't come cheap. With real estate agent commission and fees amounting to as much as 6% of the selling price (that's $18...
Beverly Harzog is a nationally recognized credit card expert, author, and consumer advocate. She blogs about credit cards at BeverlyHarzog.com. Being in credit card debt is the pits. I've bee...
If you haven't already felt the pressure to refinance your mortgage, you're probably really feeling it now. Mortgage rates are still hovering near historic lows. But with the economy improving...
If you or someone you know is thinking about getting a home mortgage, you may want to know about the thousands of dollars in hidden charges that some lenders are quietly adding to mortgage loans ...
by Christian Hudspeth Money market accounts (MMAs) and savings accounts make great places to set aside your emergency fund money and earn some interest income at the same time.Simply put, these s...
by Christian Hudspeth It's true that auto loans and home loans offer attractively-low annual percentage rates (APRs), while credit cards offer borrowing power without the risk of ever seeing the ...
by Christian HudspethWant to keep your emergency fund safe while earning interest yields that are three to five times higher than a typical savings account? Putting your money into an FDIC-insure...
Question: Hi there. I need your advice. I'm only 19 and I really need to start investing. Where can I start? -- Tirelo M., Gaborone, Botswana Answer: You've definitely got the right thinkin...