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.