Maximize your Losses and Raise your Premiums
Make the following homeowner insurance mistakes, and you will be sure not to have the right amount or types of coverage that you need.
1) Don't purchase insurance
You can't stop bad things from happening, but you can protect yourself financially by purchasing homeowners insurance. Benefits of having insurance include:
Peace of mind: Insurance provides some security or peace of mind from pending loss or catastrophe
Payment for losses: Insurance supplies the financial aid that permits a family or organization to continue despite serious loss
Provides a basis for credit: Creditors must know that their collateral will not disappear in a fire or other loss, and this security is achieved by having the borrower purchase proper amounts of insurance for their homes or automobiles
2) Don't purchase enough insurance
Your home's worth can be determined in two different ways:
- Market value: The home's market value is the price agreed to by a buyer and seller. This price is influenced by many different factors (location, age of the home, etc.)
- Replacement cost: The replacement cost is the actual cost of rebuilding the house after a complete loss. This cost will fluctuate depending on the cost of materials, construction, etc.
- Who or what is covered
- What coverage exclusions and limitations apply
- When coverage begins and ends
- How much you'll pay for coverage (the premium)
- How to report a loss or file a claim
- Fire and lightning
- Smoke
- Frozen pipes
- Ice and snow
- Security system (offers an average of between 5 to 15 percent discount off your insurance policy, depending upon the provider)
- Carbon monoxide and smoke detectors
- Sprinkler system
- Dead-bolt locks
- Heat detectors & Fire extinguishers, accessible fire escapes
- Handrails installed alongside stairs
- Wiring system which is both up-to-date and adequate for miltiple appliances, which prevents overloading of sockets (a fire hazard)
- Backyard pool (if present) surrounded by fence with a securely locked and bolted gate
- Heating system which is updated and regularly inspected by a professional
- Sidewalks outside the house are maintained and contain no large cracks, chips or holes
- Flammable substances kept outside, preferably, at relatively cool temperatures to avoid overheating and risk of fire
- Discounts to those 55 and older
- Group coverage (through your employer or a business group) may offer a better deal
- Discounts for longer-term customers, i.e. up to 10 percent if you've had your policy with a company for over six years.
- If your home is near a fire department or a fire hydrant, you may apply for a discount. If you live more than 5 miles from the nearest fire station, and more than 1,000 feet from a fire hydrant, you will most likely pay a higher premium.
- Construction Type: Before buying a home, consider its construction type, such as frame or concrete block and steel. A wood frame house typically costs more to insure than one built of concrete.
- Claims Free Record And Renewal Discounts: If you have not had a claim under your policy for 3 - 5 consecutive years, you coild receive up to a 15 percent discount, depending on the insurance company. Most companies will also discount your premium if your policy has been in force for 3 straight years.
- Mortgage Free Discounts: Homeowners who have paid off their mortgage may be offered premium discounts of up to 5%.
- New And Renovated Home Discounts: A majority of insurance companies offer a discount for new homes, and you may qualify if your home was built in the last 10 - 15 years. Also, a recently renovated home costs less to insure, so find out when the last major electrical, heating and plumbing update was completed on the home.
- Non-Smokers And Early Retiree Discounts: To qualify, you must be a non-smoker and you cannot permit smoking in your home by anyone. Retirees or senior citizens are usually offered discounts because insurance companies believe they are home more often and are therefore better able to protect their home against fire and burglary.
- Live-In House Keeper: Some insurers offer up to a 2 percent premium credit if you have a live-in employee as they feel it could reduce the likelihood of burglary.
Homeowners should have enough coverage to rebuild their house in the exact style and quality of the original home, after taking inflation into consideration. Remember that the cost to rebuild your home is going to be different than what you paid for it. Here are some tips to make sure you have enough insurance:
1. For a quick estimate on the amount to rebuild your home, multiply the local building costs per square foot by the total square footage of your house.
2. Factors that will determine the cost to rebuild your home are: construction costs, square footage of the structure, type of exterior wall construction and frame, the style of the house (ranch, colonial), the number of rooms & bathrooms, the type of roof, attached garages, fireplaces, exterior trim, and special features such as arched windows or unique interior trim.
3. Some recommend that you do not insure your home for the market value. The cost of rebuilding your home may be higher or lower than the price you paid for it or the price you could sell it for today.
4. Most lenders require you to buy enough insurance to cover the amount of your mortgage. Make sure it's also enough to cover the cost of rebuilding.
5. Increase the limits of your policy if you make improvements or additions to your house.
3) Don't shop around
You should actually get quotes from several insurance companies and check that each company you're evaluating has a good reputation in the industry. Note: the lowest price does not always equal the best deal. A policy might cost less because it offers fewer, or different, features and benefits. Further, in today's competitive market, it's quite possible you'll receive widely disparate quotes on policies that offer essentially the same coverage. This climate is to your advantage however, since if you don't like the quote you receive, there are plenty of other providers who will offer you a potentially better quote.
4) Never read your policy
An insurance policy is a legal contract that you should read before signing, and if necessary get help from an insurance expert to understand exactly what is and what is not covered. Do this before you suffer a loss so that you don't get surprised. The policy will tell you:
5) Let your policy collect dust
As your life changes, your insurance needs change as well. Don't put your policy on a shelf and let it collect dust! The experts recommend you review your insurance policy annually to re-evaluate your coverage needs. Here are some important times to do so: marriage or divorce; starting a family; buying a house or a car/making a major purchase; your child is going off to college; starting a new job/becoming self-employed; buying or selling a business; substantial income change; retirement.
6) Be thrifty: Choose the lowest deductible
In fact, the higher your deductible, the less monthly premium you'll have to pay. For example, if you raise a $500 deductible to $1000, you may save as much as 25 percent.
7) Don't update your insurance company
If you have a home security system (e.g., fire, burglar, emergency) or have performed various updates to your home, don't forget to tell your insurer! Most insurers offer discounts for such safety features yet in many cases, homeowners fail to report them and as a result end up paying more than they need.
8) Make no connection between your home and car insurance
If you think that there is no connection between buying a home and auto insurance, think again. If you're ever in a car accident that is the result of your negligence, all of your assets (including your home) could be subject to liability claims if the claims exceed the liability limits of your auto insurance policy. So, you should re-evaluate the existing liability limits on your auto insurance policy to make sure that you have adequate coverage to protect your home. If you feel that you need more coverage, you may want to purchase a separate umbrella liability policy, which would pay for damages that exceed the coverage limits on your auto and/or homeowners insurance policy. In addition, consider buying your home and auto policies from the same insurer. Some companies will reduce your premium up to 15 percent if you have at least two policies from them.
9) Assume your diamonds are forever
Most standard homeowners insurance policies provide coverage for the following “basic†damages to your home:
While some policies provide limited coverage for certain high-priced or hard-to-replace items, additional floaters will be necessary to protect items like engagement rings, watches, furs, antiques, and other valuables. You'll need to have each item appraised. Similarly, if you sell a valuable for which you have a floater policy, make sure you're not paying for the extra insurance.
10) Don't ask for a discount
The insurance companies' rationale is simple: The more safety measures you have in your home, the less likely they're going to have to come to your aid following a loss or disaster, thus the lower your insurance premiums. So, make your home safer and help keep your rates reasonable at the same time! Here are some potential discount avenues:
11) Don't keep track of your belongings
When you make an insurance claim for damaged, lost, or stolen property, you must prove your claim. You'll be asked to provide copies of bills, receipts, or other documentation to support your figures. If you fail to include an adequate description you may receive less than full compensation for your losses. Relying solely on your memory can be an expensive mistake! The experts recommend a home inventory: a detailed list of the personal property located in your home and on your property. You should list: furniture, jewelry, artwork, antiques, appliances, kitchen contents, clothes, carpets, drapes, computer equipment, television sets and other audio/audiovisual equipment, musical instruments, clocks, mirrors, linens, lawn mowers, snow equipment, tools, sports equipment, and any other item of value.
Home inventory tips: The easiest way to take an inventory is to photograph or videotape your belongings. Many computer software packages have inventory systems to make the job easier. Make sure to open closets and cabinets as you go through each room. A list of serial numbers, model numbers, purchase prices and dates is also helpful. Keep a file of sales receipts or appraisals (especially important for electronics, jewelry, artwork and other expensive items). Store a copy of the inventory and other valuable papers in a safe-deposit box, with a friend, and at home. Update your inventory at least annually to make sure that it accurately reflects your home's contents.
12) Don't report your loss
In the case of loss or damage, be sure to notify your insurance company. If the loss is due to a criminal act such as theft, notify the police. Verify what documents, forms, and other data you will need to process your claim. Save receipts from temporary repairs and submit them to the insurance company for reimbursement. Permanent repairs should not be made until after the company has had a chance to inspect the damaged property. If you are unable to live in your home, inform your insurance company of your whereabouts so they can reach you. Complete and submit all required forms in a timely manner to help prevent delays in the claims process.
13) Always agree with your insurance company
If you do not agree with the amount your company is allowing for your loss, you can initiate the appraisal clause of the insurance contract. This requires you and your insurance company to each select a disinterested appraiser. The appraisers in turn select an umpire. Each appraiser evaluates the loss and determines the value of each item. Any disagreement between the two appraisers regarding the value of any item(s) is settled by the umpire. The cost of this process is shared by the policy holder and the insurance company.