Common Homebuying Mistakes

People own homes for many different reasons: to fulfill a dream, raise a family, or maybe supplement the family budget with rental income. Who is living in your home directly determines the type of policy you should have. There is a different policy for people who own and live in their home as opposed to people who own a home that they are renting, or even people who own a home that nobody lives in. In some instances, your claim won’t be covered if you have the wrong policy based on the occupancy of your home. This is because each of these situations carries its own unique risks and are priced for those risks. If the occupancy of your home changes, make sure to ask your agent to update your policy accordingly.

Insurance companies have long done away with “all risk” policies that covered every possible thing that could happen to a home, and customers in high-exposure states found them to be cost-prohibitive anyway. Your homeowner’s policy is meant to protect you in the event of a major, or even semi-major, disaster but does not operate as a warranty plan. Take the time to understand from a comprehensive level what is and is not covered before you make your final decision.

Flood insurance covers your property and/or contents against storm surges and flooding during torrential rains, hurricanes, and tropical storms. Many people are not aware that a homeowners insurance policy does not include flood coverage.

You have an option to purchase flood insurance through the National Flood Insurance Program, but there is a 30-day waiting period required before a flood policy will go into effect, so it is important not to buy this coverage at the last minute.

You also are able to purchase a private flood endorsement for your policy and carriers like American Integrity require no waiting period! Your insurance agent can help you learn more about whether it makes sense for you.

Make sure you insure your home for its full value, not just the amount of your home loan. Your mortgage company is only concerned with protecting their asset.

Let’s say you own a home that is worth $300,000, but you only owe $50,000 to the mortgage company. Your mortgage company will only require you to purchase $50,000 in insurance coverage. Obviously, the premium on a policy with only $50,000 in insurance coverage would be a lot less expensive than one with $300,000 in coverage, but what happens if you have a total loss? You will only receive a check for $50,000 and it will likely go straight to your lender. 

When it comes to personal property coverage, there are two common types of protection: Actual Cash Value (ACV) and Replacement Cost. If your items are insured at Actual Cash Value, your reimbursement takes depreciation into account – meaning you’ll receive the current market value of the item at the time of loss, not what you originally paid for it. For example, if a five-year-old television is damaged, the payout would reflect its used value, not the cost to buy a brand-new model.

With Replacement Cost coverage, depreciation is not applied. Instead, you’re reimbursed for the amount it would take to replace the item with a new one of like kind and quality. Using the same example, you would receive enough to purchase a comparable brand-new television today. Make sure you understand how your personal property would be handled in the event of a loss.

People often make the mistake of reducing the amount of coverage on their home in an attempt to bring down their premium. A better approach would be to carry strong coverage and simply raise your deductible. You still have a lower premium and you get to keep your robust coverage. For example, in the event of a large loss, you will only be “out of pocket” a deductible of, say, $1,000 or $2,500 – instead of being out $175,000 to replace all the contents of your home.

If you are renting out your home and those occupying it experience a loss to their personal property, your “landlord” policy will not cover this loss. Your tenants need to have her/his own renter’s policy to cover their personal property and liability.

Insurance can be complicated, and when you’re purchasing coverage for your most important asset, you want to make sure you have the coverage you need. Agents are required by their state to be licensed and continually educated on all aspects of insurance. They can communicate the important details to you, so you can make an informed decision.

Agents can also compare differences in price and coverage across many companies. Most agents sell many types of insurance policies so you can easily purchase home, auto, life, and much more in one stop.