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Costly Homeowners Insurance Mistakes to Avoid

If you own a home and have a mortgage, your lender requires you to have a Homeowners Insurance Policy to protect its investment. The importance of protecting your largest investment with an insurance policy is simply a no-brainer for most people. While most people are keenly aware of the importance of having home insurance, many homeowners may not be familiar with these two costly mistakes and how to avoid them.

Underinsuring Your Home

Negotiating your homeowners insurance policy is definitely not a time to cut costs or err on the side of less rather than more. By one estimate, about 66% of homeowners are underinsured. Many consumers think that their policy is sufficient if it covers their mortgage amount. The mortgage amount isn’t indicative of a home’s value. It doesn’t reflect the down payment amount or the home’s value taking into account appreciation. The best way to decide how much coverage you need is to research how much it would cost to rebuild your home. Don’t forget to include any upscale features into this calculations (high-end Italian marble countertops, custom-made built-ins, etc. This number is a good indicator of how much coverage you should have.

Making Assumptions about What Your Policy Covers

A typical homeowner’s policy covers damage from fire, flood, and mold; a tree falling on your house; a car crashing through your house; etc. right? Wrong. Very wrong. Most policies do NOT cover flood damage, mold damage, or even sewage-backup damage (which may occur after an unusually heavy rain event.) When in doubt ask your agent and read your policy’s fine print. Fortunately, you can (and certainly should) purchase these coverages separately. According to the Insurance Information Institute, water damage (from flooding) consistently ranks as one of the top three reasons homeowners file claims.
Assuming You Have One, Flat Deductible
While some homeowners policies have one deductible, others have different deductibles depending on what prompts a claim. For example, many policies stipulate that certain events, like a named hurricane for example, trigger a “percent of coverage” deductible. If your home is damaged during a hurricane, instead of paying a flat $1,000 out of pocket, for instance, you could be shocked to learn you owe 5% of your home’s insured value. (On a $250,000 home, for instance, that would mean out of pocket costs of $12,500.) Always know exactly what your deductibles are (and what your policy covers.)

If you’re not certain that your home insurance policy is adequate and aren’t certain about what it covers or what your deductible(s) are, call us at Metro Boston Insurance Agency, 617.884.5480. Don’t risk the shock of submitting a claim and learning your insurance does not cover it.

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