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3 Mistakes To Avoid When Purchasing Home Insurance

Navigating home insurance can be tricky, but understanding your coverage options is key to helping you avoid gaps in protection and facing unexpected repair costs. In this blog, we'll explore three common home insurance mistakes and offer insights to support making informed choices with your agent.

1️⃣ Ignoring Policy Limitations and Exclusions

Many policyholders believe their home insurance covers all types of damage, but every policy has its limitations and exclusions. These gaps often become apparent when filing a claim, leaving homeowners to discover that certain damages aren’t covered. To prevent paying repair costs out of pocket, it’s crucial to understand the exclusions and limitations of your home insurance policy and assess whether it provides adequate coverage.

🔍 Common Home Insurance Exclusions:

• Flood Damage: Standard home insurance policies typically do not cover flood damage. Flood damage is generally defined as exterior rising water, which can occur due to storm surges or extended periods of rainfall.

• Earthquake and Sinkhole Damage: Home insurance policies generally exclude damage caused by earthquakes and sinkholes. However, many home insurance companies offer endorsements to include coverage for these excluded perils.

• Specific Named Perils: In areas prone to certain natural disasters, such as hurricanes, tornadoes, and wildfires, insurance companies may not automatically include coverage for these named perils. Coverage for these scenarios is typically added through an endorsement.

✅ Addressing Home Insurance Exclusions:

• Review Policy Details: Carefully review the exclusions in your policy documents with your insurance agent. Ask them to explain any terms or conditions you don't understand to ensure you fully grasp your coverage.

• Consider Endorsements: Discuss with your insurance agent about adding endorsements to cover specific exclusions. Every home insurance company has its own set of exclusions and endorsements. HonestFlow recommends working with insurance agents to identify your policy exclusions and explore methods to tailor your policy to meet your specific insurance needs. Evaluating endorsements can help cover policy gaps, reducing the risk of paying significant repair costs out of pocket.

• Additional Policies: Depending on your needs and the insurance provider, some coverage options might be better addressed through separate policies. For example, flood insurance is typically purchased separately through the National Flood Insurance Program (NFIP). Additionally, policyholders seeking liability coverage beyond the home insurance policy limits may consider a separate umbrella policy. Not sure which policies to get? Connect with our verified agents for personalized coverage recommendations!

2️⃣ Choosing the Lowest Premium Without Evaluating Coverage

While saving money on premiums is important, selecting a policy solely based on the lowest premium can leave you underinsured. It's crucial to understand what your home insurance policy covers to avoid unexpected financial hardship when filing claims. Repair costs from excluded perils or expenses that exceed policy limits typically fall on the policyholder. Considering the high cost of home repairs, purchasing a policy with significant coverage gaps can leave you responsible for paying substantial repair costs out of pocket. Here are a few areas to consider discussing with your insurance agent:

🔍 Key Home Insurance Elements:

• Perils Covered: Ensure you understand which perils are covered by your home insurance policy, such as tornadoes, hurricanes, or wildfires. Some policies may need specific endorsements to include coverage for specific perils.

• Dwelling Coverage: Home insurance agents often recommend that the dwelling coverage limit matches or exceeds the replacement cost estimate (RCE) of your home. This generally reflects the estimated cost to rebuild your home to its original state if it's completely destroyed. It's important to know that the replacement cost estimate is not the same as the market value of the home. Click here for more information about evaluating your home's RCE.

• Personal Property Coverage: Personal property coverage comes with many intricacies, particularly in how claim settlements are determined and whether certain items have limited coverage. It's important to verify if your belongings are covered at replacement cost or actual cash value (ACV), as ACV considers depreciation and can significantly reduce claim payouts. Additionally, be aware if high-value items like jewelry, electronics, and artwork have limited coverage, and whether a scheduled personal property endorsement is necessary.

✅ Balance Home Insurance Coverage and Cost

• Compare Coverage: Each insurance company offers different coverage limits, endorsements, and deductibles. Insurance agents can match your policy coverage to your insurance needs, helping you avoid paying for more coverage than necessary.

• Leverage Discounts: Each insurance company offers its own discounts, which can vary significantly. Working with insurance agents can identify which discounts you are eligible for, and which discounts may be available with future home improvements.

• Evaluate Rates: Shop around and compare quotes from multiple insurers. Each home insurance company has its own internal rating algorithm to evaluate risks, and it’s possible to find a policy offering similar coverage with lower rates at a different insurance company.

3️⃣ Failing to Update Coverage After Home Improvements or Market Changes

Home improvements, renovations, or changes in the local construction market can affect the replacement cost of your home. When determining coverage limits for a home insurance policy, insurance agents often reference the replacement cost estimate when evaluating dwelling coverage. In some cases, insurance companies (and mortgage lenders) may not allow dwelling coverage to be below the replacement cost estimate. Even if your dwelling coverage matches the replacement cost estimate, changes to your home and the market can increase the replacement cost. If your policy does not adjust for these changes, you may risk being underinsured.

🔍 When To Consider Updating Coverage

• Renovations: Major upgrades, such as a new kitchen or bathroom, can significantly increase your home's value and replacement cost.

• Additions: Adding a new room or structure, like an attached garage or deck, should be reflected in your dwelling coverage.

• Market Changes: Increases in building material costs and labor rates (such as inflation), can increase the replacement cost of your home. To learn more about how your home's replacement cost estimate can change, check out our detailed blog here.

✅ Keeping Track of Your Coverage

• Annual Review: Conduct an annual review of your policy with your insurance agent to ensure your coverage reflects any changes in your home or market conditions.

• Document Changes: Keep detailed records of any home improvements or additions and share them with your insurer to adjust your coverage limits as needed.

• Ask Questions: Use resources like HonestFlow's "Questions to Consider" guide to ask important questions about your coverage and evaluate coverage and exclusions.

Solutions with HonestFlow

Avoiding common pitfalls such as overlooking policy exclusions, focusing only on the lowest premium, and neglecting to update your coverage can reduce the risk of having a policy with unexpected coverage gaps. HonestFlow connects insurance shoppers with verified agents who can assist in understanding home insurance options, helping you navigate common pitfalls and find coverage suited to your unique risks. With HonestFlow, you decide how many agents you receive quotes from - no more being bombarded by dozens of agents. Additionally, HonestFlow shoppers receive our "Questions to Consider" guide after completing their quote request to help them understand coverage options with their agents. If you’re in the market for home insurance or want to evaluate your home insurance options with a new agent, request home insurance quotes with HonestFlow!

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