Costly Homeowner's Insurance Mistakes to Avoid
Too Much, Too Little
or Just Right?
Story By Jamey Bradbury
When was the last time you really looked at your homeowner’s insurance policy? If it’s been more than a year, you might be surprised by what is, and isn’t, covered.
Do the Math
“The time to find out you don’t have the right coverage is before you have a claim,” warns Dan Crawford, president of Palmer-based Pippel Insurance. This kind of last-minute discovery can mean huge expenses when disaster strikes.
The most common problem agents see is when homeowners don’t have enough insurance to cover the cost of rebuilding. “People think they only need the amount of coverage they bought the home for,” explains Steve van Horne of State Farm Insurance, “but while there is a relationship, it’s not dollar for dollar.”
One tool that can help you find out whether you have enough coverage is a replacement cost calculator, which estimates the cost of rebuilding based on basic information like square footage and number of rooms. “Once we have that calculation, we start customizing things according to the homeowner’s unique needs,” explains Diane Johnson of Allstate.
Adds van Horne: “The calculators also account for factors that are unique to each geographic area within Alaska and the cost of construction in those areas.”
Making this calculation is a great way to figure out how much protection you need, and it’s something that should be done on a regular basis. “We try to do annual reviews, timed with the homeowner’s policy renewal,” says Johnson. “We look at any changes that have been made – a new deck or garage – that might change the coverage that’s needed.”
In addition to increasing coverage, changes can also result in discounts. Letting your insurance agent know whether you’ve upgraded your furnace or installed a burglar alarm can help reduce your premium.
You can also find areas where you might be overinsured. Most policies include coverage for outbuildings like unattached garages or sheds – whether you need it or not. According to Crawford, you can request to delete that coverage and get a small premium refund in return.
Inside the Home
Personal belongings are also covered – but only to an extent. Most policies specify maximum dollar amounts that limit what the insurer will pay out for personal articles; in the case of a total loss, a homeowner might find that he doesn’t have the coverage to replace everything.
“Alaskans tend to have unique items, like collectibles, Alaskan art, artifacts,” van Horne explains. To cover higher-end or rare items, he suggests homeowners add a personal articles policy to their insurance. This policy not only covers loss due to fire or burglary, but extends coverage to things like broken artwork or “mysterious disappearance,” in cases where an expensive piece of jewelry goes missing, for instance.
Another advantage of covering your personal belongings with an additional policy is that you can control the cost of your insurance to an extent. The deductible on a personal articles policy is separate from that of the homeowner’s policy, and can be much less. “You can save on your annual premium by having a higher deductible on your homeowner’s insurance,” advises van Horne. “Then keep your replacement costs low by covering things like laptops or jewelry with your personal articles policy.”
Don’t make the mistake of believing that just because a belonging is on your property, it’s automatically covered. “You may park your snowmachine in the garage, but that doesn’t mean it’s insured under the homeowner’s policy,” says Johnson. “Things like four wheelers and boats need their own individual policies.”
When Disaster Strikes
Just as there are exceptions to the types of belongings covered by homeowner’s insurance, there are circumstances that are also not covered. Standard policies don’t include earthquake insurance, which carries a larger deductible – typically 10-20 percent of a total loss. While it’s an added expense, failing to purchase earthquake insurance is a big risk, says Crawford: “Particularly in Alaska, earthquakes can cause grievous amounts of damage.”
Flood insurance, while also not covered, can be found through the National Flood Insurance Program, a federal program for anyone who wants coverage on damages due to flooding.
Most policies also come with liability coverage. But van Horne warns that sometimes it isn’t enough: “People tend to be underinsured when it comes to ‘good neighbor coverage,’ for situations where someone is injured on your property but you’re not involved or negligent.” Medical payments protection, which covers these types of accidents, is generally part of a homeowner’s policy, but van Horne encourages people to go with higher coverage than what is usually standard.
“My philosophy with insurance has always been that a person should self-insure for as much as he is comfortable and can afford,” he says. “A homeowner could cover lower-cost things himself, and let us take care of the high-cost things, including liability or medical payments – the kind of things that can be financially devastating.”
Coverage Beyond the Home
Once you’re certain you have the right kind and amount of coverage, you may want to look at other ways homeowner’s insurance can protect you. Beyond simple liability coverage, a liability umbrella can give you broader coverage for things like personal injury, libel or slander, or protection for your personal assets in the event you are sued after an accident.
Some policies even offer coverage in case of identity theft, often up to $10,000. The fee for adding this coverage is relatively small.
Of course, prevention is the best insurance, says Crawford. “Find an agent who can help mitigate loss before it happens,” he advises.
The first step toward prevention and protection can happen right now: Look over your homeowner’s insurance policy; make an appointment with your agent to let him or her know about any changes you’ve made to your home over the last year. Says van Horne: “The goal is to make sure you don’t have too much or too little, but the amount of insurance that is just right for you.”