These 6 Common Homeowners Insurance Myths Could Cost You Money
Homeowners insurance can be complicated, which may explain why some misconceptions persist even among people who’ve been buying insurance for years. Unfortunately, misunderstanding what your policy does—and doesn’t—cover can become expensive when you have a claim.
Myth 1. All Insurance Policies Are the Same
Homeowners insurance policies may look similar, but coverage terms, limits, deductibles, exclusions, and available endorsements can vary significantly from one insurer and homeowner to another.
For many reasons, different insurers may charge widely varying amounts for similar coverage. It pays to work with a broker who’s affiliated with multiple companies to help tailor the coverage to your individual situation.
Myth 2. You Can Fudge Things on Your Insurance Application
In insurance, there’s no such thing as “a little white lie.” It’s important that you answer questions honestly and disclose all the information that the insurance provider requests when applying for a policy. Fudging the facts or “forgetting” to disclose information can result in coverage being reduced or denied, or even make you liable for fraud.
Myth 3. Lapsed Coverage Doesn’t Matter
Letting a policy lapse before purchasing a new one seems harmless. Unless something happens while you’re uninsured, what difference does it make?
A coverage gap can affect more than what happens while you’re uninsured. Letting policies lapse or creating insurance gaps is risky behavior in the eyes of insurers. If they see a pattern of letting policies lapse, insurers may increase your rates or decline to offer coverage.
If you have a mortgage, the lender will typically require homeowners insurance to protect the bank’s interest. Allowing coverage to lapse could prompt the lender to implement force-placed insurance, which you’ll have to pay. Such policies usually cost more and offer little protection for homeowners.
Myth 4. Your Coverage Limit Should Equal the Market Value
Your dwelling coverage should generally reflect what it would cost to rebuild your home—not what you paid for it or what you could sell it for today. Market value includes the value of the land and reflects real estate conditions. Reconstruction cost depends on factors such as local labor and material costs, square footage, construction type and finishes.
Because rebuilding costs change over time, review your dwelling limit periodically with your insurance agent or broker. Too little coverage could leave you with a substantial gap after a major loss.
Myth 5. Home Insurance Covers All Forms of Water Damage
Insurance protection for water damage depends on the cause and source of the water. A standard homeowners insurance policy covers sudden and accidental water damage, such as burst pipes. Slow leaks, on the other hand, are considered a maintenance issue and typically aren’t covered.
Damage from water that backs up or overflows from a sewer, drain, or sump isn’t covered by a standard homeowners policy. Neither is flooding, when water enters a building due to heavy or prolonged rain, melting snow or coastal storm surges. Sewer or drain backup coverage may be available through an endorsement to your homeowners policy. Flood damage generally requires separate flood insurance.
Myth 6. All Contents Are Protected up to the Policy Limits
As long as the total value of your personal possessions doesn’t exceed the policy limits, they should be protected, right? Again, that depends. High-value contents—such as jewelry, artwork, guns or collectibles—may be subject to special coverage limits even when your overall personal property limit appears adequate. Depending on the item and policy, you may need an endorsement or separate scheduled coverage to protect its full value.
Particularly with art, collectibles or rarities, make sure you give your insurer a full list of covered items, documented with photos, receipts or appraisals. If in doubt, ask your agent or broker what you need to protect your valuable items.
Not Sure What Your Homeowners Policy Actually Covers?
The professionals behind the City Building Owners Insurance Program can review your existing coverage, identify potential gaps, and help you determine whether your policy still reflects your home and current insurance needs.
If you have any questions about your insurance coverage or would like a complimentary review of your existing policies, please call us at 877-576-5200.
