Floods, hurricanes, wildfires, tornadoes and more – we hear about perils to our homes frequently on the news. According to NOAA, 2020 and 2021 were record-setting years for weather and climate disasters, resulting in 1 in every 10 homes in 2021 impacted by a natural disaster.
How confident are you that your homeowner’s insurance will meet your expectations if you need it? Let’s look at 5 common mistakes with homeowner’s insurance.
Mistake #1: Not purchasing an adequate amount of homeowners insurance coverage to rebuild your home or replace your belongings if needed.
Do you know how much it would cost to rebuild your home? According to multiple reports, about ⅔ of all homes are underinsured for rebuilding costs. If you don’t have the proper coverage, you may have to pay out of pocket – potentially tens of thousands of dollars or possibly more – to rebuild your house if you find yourself in this situation. It’s especially important to think about the cost to rebuild now given our current economic situation and the difficulties in supply chains and getting materials. Add to that the labor shortage and inflation and it’s not difficult to understand how this has happened.
Other factors can also increase the cost to rebuild, such as changing building codes. Some victims of the massive December 2021 Colorado wildfire learned that their garages were now supposed to include electric car charging stations, and new requirements were in place regarding solar panels. Another challenge Colorado wildfire victims faced was the demand surge for all the materials and services because so many homes needed those resources all at once.
For your belongings, are they insured for the replacement value or actual cash value? Imagine the actual cash value of an 8-year-old washing machine versus the cost to replace it. Are there any limits in place you should be aware of for specific types of property such as art or jewelry? Make sure you understand the specifics of your policy and how it will pay out in the event you have a claim.
Mistake #2: Not ensuring you are covered for all the perils that may impact your home.
Most insurance policies cover specific perils only and the insurance policy may not be as inclusive as you think. It’s important for you to understand what is covered and what options might be available to you. For example, what would be covered by your policy in the event of a flood? In standard homeowner policies, floods are not commonly covered. According to Bankrate.com, a single inch of water can result in $25,000 worth of damage so it’s important to assess your risk. Work with professionals to ensure you have the right coverage or that you completely understand the financial risk you are taking if you don’t purchase the insurance.
Mistake #3: Not realizing when you need renter’s insurance.
Imagine if you have been a homeowner for years and downsize into a place that you are now renting, you may think you’re off the hook for carrying insurance. However, to cover the many risks that you face with your belongings and the place you call home, you want to consider renter’s insurance. This generally covers things like your belongings, bodily injury, and additional living expenses if you are displaced from your home.
Mistake #4: Not researching your insurance company. With the wide variety of information at your fingertips via the internet, you can go many places to review information on your agent or insurance carrier. You may wish to start with your state’s insurance department to see how many complaints have been filed and how they were resolved. As you consider the cost of the premiums, weigh it against the value that you may need and want from your insurance company after disaster strikes. Will their service levels ensure that they will be a good partner for you? If you have been with a certain insurance company for a while, how good have they been about checking in with you to see if your needs have changed?
Mistake #5: Not annually reviewing your needs and updating your coverage. Think about changes you have made in your home. For example, did you put in a new swimming pool? Replace your roof? Add a home office? On an annual basis, our insurance carrier sends a questionnaire to my husband and me. We fill this out and if needed, our insurance carrier schedules in-person appointments to ensure we are clear about our coverage and discuss any potential gaps or savings. We recently had our insurance carrier out to do a full inspection of our home and found we were approximately 36% underinsured! A good insurance professional should be a partner that you can count on to help you select the appropriate coverage and navigate a claim if you need to file one.
Given the heartache that damage to a home can bring, it’s important to give yourself the best chance for recovering financially from your loss. Added financial hardship can weigh on you and create upheaval in your life during an already precarious situation.
These top 5 common mistakes are not an exhaustive list. Invest the time to consider your expectations and the coverage you need to set yourself up for the best outcome in the event a disaster strikes your home. Reach out to your financial planner if you would like to discuss this more at your next meeting with us.