We’ve been in the business a long time, and we’ve seen people make every mistake under the sun when buying homeowners insurance. We do our best to advise our clients to avoid these common pitfalls, and now we’re sharing them with you:
- DO Check for the Best Value – Not the Best Price
Insurance companies charge rates that are high enough to cover their losses if a disaster hits. If you’re being offered a price that seems too good to be true, odds are good that the insurance company is planning to keep their profits by refusing to uphold their end of the bargain. You want a company with a solid reputation for integrity – and you can’t find that Googling “cheapest homeowners insurance.”
- DO Get Adequate Insurance for Your Home
Sounds obvious, but a surprising number of people don’t adequately insure their home, which means that if it’s destroyed in a fire, they can’t rebuild. Use a building cost estimator to get a more accurate amount of insurance, and make sure to read this important article on the 80% coinsurance clause (link) – it could save you from bankruptcy.
- DO Include Other Structures on Your Property
Most homeowners policies extend 10% of the dwelling limit to cover other structures on the property like garages, in-ground swimming pools, decks, fences, gazebos, tool sheds, and other structures. If you have a large property, your other structures might not be automatically covered, so make sure to give them proper protection!
- DON’T Underestimate the Value of Your Belongings
Your home includes many features that aren’t automatically factored in when it comes to a rebuild, like hardwood floors, expensive carpeting, fancy wallpaper, lighting and plumbing fixtures, cabinetry, nice furniture, appliances, and entertainment systems. Be sure to list these items in the value of your property so you can replace all the items that make a house a home.
- DO Use the Replacement Cost Option
You’ll see that you can choose between being repaid the Actual Cash Value of your property or the Replacement Cost. You want the Replacement Cost; Actual Cash Value only pays for the depreciated value of the item. For example, if your refrigerator was 5 years old, the Actual Cash Value might be only $100 – but the Replacement Cost would buy you a brand-new one.
- DO Choose the Extended Replacement Cost
Not all insurance companies offer it, but if it’s available, you should definitely take the extended replacement cost option. It’s similar to the Replacement Cost for your valuables described in #5 – except this option covers the cost to replace your entire house from the ground up. If you can get it, you absolutely should.
- DON’T Forget the Basement
Your basement might have been very expensive to get finished, but without Flood Insurance and Backup of Sewers and Drains Coverage, you could be stuck with 95% of the cost of replacing it after damage. Check out these articles to learn more. [links]
- DO Get the Flood Insurance
We know, we just mentioned Flood Insurance, but we’ll do it until everyone has it. Every single homeowner can face a loss due to a flood, especially in the New York and New Jersey area. All homeowners policies automatically EXCLUDE flood coverage – you need to add it in!
- DO Include Personal Liability Coverage
Your teenage son has a friend over, and as they’re horsing around, the friend hits his head on the concrete steps of your house. The friend’s parents sue you for medical damages – and without personal liability coverage, you’ll wind up paying for those medical bills out of your own pocket.
- DO Learn Basic, Broad, and Special Forms
A basic form only provides coverage for its included list of ‘perils’ such as fire and lightning. A broad form adds three more ‘perils’ to your coverages, and a ‘special’ form covers you against all losses that are not specifically excluded. We recommend the special – some disasters are stranger than fiction.
- DON’T Forget Your Business
If you run a business from home, have an at-home office containing equipment and electronics, or decide to start up a small side venture selling your famous pasta recipe, you need additional insurance to cover your business property. (And your liability, if that pasta recipe sends a neighbor to the ER with food poisoning.) Make sure you tell your insurance provider you have a home business!
- DO Consider Earthquakes
Every major region in the US has fault lines, and New York and New Jersey are no exception. The good news is that loss probability is a lot lower than, say, California, and you can get good coverage for a very reasonable rate. Worth the investment.
- DO Look For High Winds
When Hurricane Irene tore through the Northeast, many homeowners were surprised to find their policy offered much less coverage than they thought for the damages. They forgot to factor in the wind deductible. Here’s a full breakdown of what the wind deductible is and how it can cost you: [link]
- DO Get Your Discounts
Many insurance companies will give you a discount for certain items, so be sure to ask about these:
- Security systems
- Central fire alarm that reports to a fire station
- Central burglar alarm that reports to the police dept.
- Water sprinklers inside home
- Deadbolt locks
- Smoke alarms
- Lightning rods
- “Package discounts” (home, auto, and/or life in one policy or with the same agent)
- EFT billing discounts
- Paid-in-full discounts
Get all of these boxes ticked, and you’ll have a rock-solid homeowners policy that you’ll be glad to have at your back when a disaster strikes.