Don’t Fall Into These Personal Insurance Traps

Jul 23, 2021 | Personal Insurance

One of the best decisions you can make is to invest your hard-earned money in a home that you can call your own. Buying a home is one of the most valuable investments you can make. Protecting your investment requires obtaining a homeowner’s insurance coverage. In comparison to estate planning and investing options, a homeowner’s insurance coverage may be unimportant to some. But did you know that when your assets grow in value, so do your asset protection needs? When purchasing homeowner’s insurance, be wary of insurance traps that could cause you to lose money. Don’t fall into these personal insurance traps to protect your most valuable assets.

Underinsurance of your Home

In the event of a covered loss, a homeowner’s insurance policy will assist homeowners in rebuilding their homes. As time goes on, the rate of inflation rises, affecting the cost of rebuilding a home. As a result, replacement costs in the United States are increasing. It’s a good idea to assess your home’s replacement cost at least once a year. You can get help evaluating the replacement cost of your home from your insurance agent. Make sure you have enough policy coverage to rebuild your home in case it gets destroyed by a covered loss. 

Failure to Understand Policy Product Disclosure Statement

The terms and conditions of insurance plans are very precise. Read your insurance policy carefully and make sure you understand everything. This will help you understand what your homeowner’s insurance policy covers and what it doesn’t.

Gaps in Level of Home Insurance Coverage

Homeowners must reassess the level of their home insurance coverage regularly. Home improvements increase the replacement cost of the property. Inform your insurance agent about any changes made to your property, so they can revise your policy coverage. Ensure your homeowner’s coverage is enough to cover the replacement costs in case of home repair/rebuild.

Examples of Home Improvements

  • Upgrades in home exterior
  • Windows, electrical, and plumbing upgrades
  • Bathroom and kitchen remodeling
  • Addition of a patio, deck, or porch
  • Additional building in your home

Automatic Renewal of Home Policy

Don’t automatically renew your home policy. To get the best value for your money, it is best to get quotes from different insurance providers. Compare and negotiate quotes to get the best possible insurance coverage offer.

Underinsurance of High-Value Items

Homeowner’s insurance coverage for personal belongings has a maximum amount limit. High-value possessions may not be fully covered in case they get damaged or stolen. To secure the real value of your properties, you can increase the maximum limit of your homeowner’s contents insurance coverage. For more comprehensive protection, secure a high-value item floater on top of your home policy. The floater policy allows homeowners to provide an inventory of high-value possessions. High-value insurance replaces insured items in case of damage, loss, or theft. 

Items that Needs High-Value Insurance

  • Jewelry
  • Art collectibles
  • Musical instruments
  • Electronics such as computers, cellphones, and cameras
  • Sporting types of equipment 
  • Bicycles
  • Coins or stamps collections

Low Premiums with High Deductibles

Homeowner’s insurance coverage comes with deductibles. A deductible is the amount of money the homeowner agreed to share in the event of an insurance claim. Cheaper premiums come with higher deductibles. Some people tend to choose home insurance plans with lower premiums. This may pose financial problems to homeowners who don’t have enough emergency funds. Homeowners with low premiums might shell out a huge amount of money in case they file a claim. Always consider your financial capability when choosing deductibles for your insurance policies.

Lack of Special Insurance Coverage

Standard homeowner’s insurance policies do not cover home damages caused by natural disasters. Homeowners living in areas prone to natural disasters must ensure they have a specialized policy addressing this issue. Policy exclusions for natural disasters differ from one insurance company to another. Secure additional coverage to help you repair or rebuild your home in case it gets damaged by natural disasters.

Common Natural Disaster that Needs Specialized Policy

  • Flood
  • Earthquake
  • Hurricane/Tornadoes 
  • Tsunami
  • Nuclear Event
  • Mudslides
  • Wildfire 
  • Lightning strikes
  • Hail damage
  • Other natural disasters

Take into account your location factor in choosing additional coverage. Secure floater policy according to which natural disaster your location is prone to. These insurance carriers offer flood and earthquake coverage:

  • Liberty Mutual
  • The Hartford
  • Auto-owners Insurance Group
  • MetLife
  • Chubb
  • Neptune Flood
  • Nationwide

Omission of Household Employee Insurance

One usual mistake homeowners do is forgetting to insure their household employees. Most homeowner’s insurance policies don’t cover household employees. Homeowners must insure household employees with workers’ compensation coverage. In Colorado,  employers must provide a workers’ compensation policy to household employees working for 40 hours or 5 days a week.

Lack of Pet Insurance for Pet Owners

Homeowner’s policy only covers third-party liabilities. This means it only covers the injuries and property damages caused by your pet to other people. It doesn’t cover property damages caused by your pet to your home. Apart from property damages, pets require medical treatments in case of illness or accidents. Vet visits and medical treatments may cause a financial burden to pet owners. Pet insurance premiums are cheaper than paying for vets and medical treatments. According to Investopedia, some of the best pet insurance providers are Safeco by Hartville and Progressive.

Absence of Insurance Coverage for Home-based Business

Homeowner’s insurance policy doesn’t cover home-based businesses. It doesn’t protect business activities, supplies, employees, and customers in case of accidents. Homeowners with home-based businesses must secure a separate business insurance policy. 

Types of Home-based Business Insurance

These are the types of business insurance policies beneficial for people who run their business at home. The type of business insurance policy you need depends on the type of business you have. 

Business Liability Insurance

Entrepreneurs who have visiting clients or customers at home need to secure liability insurance. It protects businesses and business owners in case of accidents and damages involving clients or customers.

Professional Liability or Errors and Omissions Insurance

Whether working at home or not, this policy is beneficial to people who provide professional services. It protects professionals like consultants, architects, real estate agents or brokers, accountants. This insurance covers lawsuits against:

Undelivered services

Work errors

Negligence

Missed deadlines

Breach of Contract

Business Property Insurance

This insurance replaces any type of equipment used for home-based businesses in case of loss, theft, or damage. It covers common types of equipment like:

  • Computers
  • Printers
  • Fax Machines
  • Furniture used for business
  • Tools 
  • Inventory stored at home
  • Documents 

Business Automobile Coverage

Personal auto insurance doesn’t cover vehicles, especially a fleet of commercial vehicles, used for business purposes in case of an accident. Home-based businesses that involve deliveries or client visitation must secure commercial auto coverage. It provides coverage in case you get involved in an accident while doing business activities.

Product Liability Coverage

This coverage is suitable for business owners who make or supply products to customers. In the event your product causes personal injury or property damage, product liability insurance will protect you. It provides financial support in case of lawsuits and settlements. 

Workers Compensation Insurance

Workers’ compensation requirements depend on the state laws. Colorado state laws mandate businesses to carry workers comp coverage. Employers must provide workers’ compensation coverage regardless of the number of employees.

Become a Constant Claimer

One factor that affects the increase of insurance premiums is claim history. It is best to think twice before filing a claim.  Do not file unnecessary claims. Homeowners with frequent claim histories will have higher premium rates. Paying for inexpensive minor repairs will save you more money than paying higher premiums.

Long-term Home Vacancy and Unoccupancy

Every insurance company follows specific terms regarding unoccupied and vacant homes. Most insurance providers don’t cover claims for homes unoccupied for more than 30 days. Certain instances prompt the need to secure a separate vacant or unoccupied home insurance. It includes:

  • Unable to move into a newly purchased home for a few weeks
  • Constant long travel that lasts for several weeks
  • Vacation homes visited only a few times per year
  • Undergoing medical treatment that requires several weeks of hospitalization
  • Unable to live in your home due to renovations
  • Rental homes waiting for tenants

Lack of Proper Home Maintenance

It is the homeowner’s responsibility to take care of their homes. Standard homeowner’s policy doesn’t cover damages resulting from lack of proper home maintenance. This includes:

  • Termite and insect damages
  • Bird and rodent damages
  • Rot, rust, and mold damages
  • Normal wear and tear damages

DIY Projects and Repair

In an attempt to save money, some people prefer to DIY home remodeling or repairs. However, DIY can cost you a lot more money if something goes wrong. Insurance companies don’t cover damages and repairs caused by faulty workmanship. It is best to hire specialist contractors for home repair or renovations.

Outdoor Property Limited Coverage and Exclusions

Homeowner’s coverage limit for outdoor structures is low. Most insurance companies only provide a 10% coverage limit for all outdoor structures. In some cases, it doesn’t cover damaged structures in the garden. The exclusion applies for damages caused by the following:

  • Snow
  • Insects
  • Pests
  • Hail
  • Wind
  • Diseases 

Choose the Right Homeowner’s Insurance Policy

Choosing the appropriate home insurance policy is vital in keeping your home and assets protected. Home coverage and protection needs differ in every family. It is advisable to get customized coverage to meet your home’s protection needs. 

AIS helps homeowners get the best suitable coverage for their homes and family. We represent the best insurance companies in terms of protection and best value. Call us at 720-221-8168 and let our competent insurance agents assist you in choosing the best homeowner’s insurance coverage for you.