Home Insurance Mistakes That Can Seriously Cost You
One of the biggest monthly expenses that comes with buying a house is homeowners insurance which keeps us under the protective umbrella in case of a burglary, fire and other mishaps that can cause financial ruin.
So, as long as you’re paying your monthly premiums for the home insurance, you’re protected, right? Well, in most obvious cases, the answer is always yes. However there are a few common mistakes homeowners make that can prevent them from filing an insurance claim.
Mistake # 1: Underinsuring your house
According to experts, if you aren’t choosing an insurance plan that covers the cost of rebuilding the home in case of fire or destruction, you’re making the mistake of underinsuring your property. One recent study by United Policyholders showed that more than two-thirds of homeowners in the United States have home insurance policies that provide inadequate coverage. Most of them have bought plans worth 80 or 90 per cent of their home value to cover just the mortgage, but not the cost of rebuilding the house in case of an accident.
To make sure that you’re sufficiently insured, first calculate the cost of rebuilding the house by using an online cost estimator. You can even ask a builder or real estate agent for an estimate of how much it would cost to rebuild a square foot in your neighbourhood.
Once you have a number to work with, check with your insurance provider to see if your current plan provides coverage that comes close to that figure. If coverage is less than the estimated cost, it’s time to increase protection which often comes with an increase in your premium. You can also ask your insurer to give you an automatic inflation provision that adjusts the rebuilding cost every year without calculating it all over again.
You can also choose a special guaranteed replacement coverage, which often costs higher premium but offers full protection against accidents and disasters, and makes sure that your insurer pays for the entire home rebuilding process no matter how much it costs.
Mistake # 2: Not Having Flood Insurance
There are certain things your standard homeowners insurance plan won’t cover, and flood insurance is one of them – unless you live close to a river or an ocean where it is often mandatory to get flood insurance before applying for a mortgage.
But even if you don’t live in a coastal area, it is wise to protect your home against flood risk, because even inland areas can sustain damage from floods in case of storms and hurricanes. This was seen during Hurricane Sandy in 2012 that caused flooding in inland cities like New York, New Jersey and Vermont.
Luckily, it’s not very difficult to acquire a flood insurance for your home under a federal program. Depending on the amount of coverage you’re looking for and the area you live in, expect to pay anywhere between $55 to $8,000 per year.
Mistake # 3: Underestimating Your Out-Of-Pocket Costs
What’s the maximum amount that you could pay in deductible in case of an accident or a disaster? If you’re thinking something along the lines of $500 or $1,000, you’re wrong. Most insurance providers will charge you a deductible as a percentage of your home’s insured value, and the amount often varies with the type of disaster you’re filing a claim for.
For example, in case of a flood, your insurer may require you to pay up to 5 per cent of your coverage whereas in case of an earthquake, the deductible amount can be as high as 15 per cent of insured value. This may not seem like a lot in the beginning but if you have insured your home for $300,000 and the property gets struck by a windstorm, you’re likely to pay up to $15,000 in out-of-pocket cost in order to file a claim.
To make sure that you’re prepared for any unexpected costs, talk to your insurance agent about deductibles for different types of damages and set up an emergency fund to cover the expenses in case of a fire or natural disaster. You can even ask your insurance company for a flat-rate deductible plan so that you know how much you’re expected to pay at the time of making a claim.
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