When you purchase a home, it’s a requirement by mortgage companies to have Homeowner’s Insurance. Most people find themselves shopping policies at renewal time to see if they can save money. While saving money is always a good thing, you also don’t want to find yourself in a situation where you are not carrying enough insurance.
Majority of policies have a reduced benefit rule. This rule states that if you carry a policy that covers less than 80% of your home’s replacement cost, your benefits are reduced proportionately. For example, Bob has a home with a replacement value of $100,000 but carries a policy for replacement value of $75,000. Bob has a pipe burst that floods the entire house. When he files a claim for $50,000 in damage, he will receive $46,875 from insurance and will have to pay $3,125 from his own pocket.
Replacement costs change each year depending on market value and improvements to the home. It’s important to review your policy each year to determine if you hold enough coverage.
In addition to the reduced benefit rule, below is a list of 10 events that are commonly never covered by homeowner’s insurance:
- Ground movement – examples: earthquakes, sinkholes, settling of the house
- Floods – you need a separate policy for floods
- Mold – if it’s caused by neglect or poor maintenance
- Wear and Tear – if you put off fixing something, like a leaky attic pipe, you may find yourself paying for all the damages out of pocket
- Termites – similar to wear and tear, it’s your responsibility to upkeep the house from infestations
- Nuclear hazards – try not to live near a nuclear power plant
- Government Action – insurance doesn’t cover imminent domain
- Aggressive Animals – if your dog bites someone in your home, your homeowner insurance does not cover it
- Wind damage – you need a separate policy for this
- Intentional Damage – if you set your house on fire, not only are you going to prison for arson, but you will not receive any money for the damages from insurance
Each Homeowner’s Insurance policy is unique. It’s important to review and fully comprehend the policy each year so you are not hit with any unexpected surprises.
Should you have any questions or concerns, please do not hesitate to reach out to one of our trusted advisors.