It's worth the effort to read and understand your homeowner’s insurance policy. As many families have learned the hard way, failing to evaluate key policy details can lead to unanticipated expenses when disaster strikes. This is especially important if you’re a first-time home-buyer who is unfamiliar with the process.
Here are some tips to avoid three common blunders found in many homeowner's insurance policies:
Under-insuring. If your policy covers only the mortgage or real-estate value, consider pumping up the bottom line, even if it means paying slightly higher premiums. Your policy should provide enough funds to start over from scratch. Construction prices tend to increase over time, so a new home on the same lot could deplete your emergency savings. In the aftermath of a natural disaster, when supply may outweigh demand for construction materials and labor, you’ll want enough funds to rebuild — not just pay off the mortgage.
Disregarding exclusions. Is your home covered for exterior flooding, or only interior water damage? Does the policy include coverage for mold, sewer backup and earthquakes? Nail down the details and pay close attention to local risks.
Misinterpreting deductibles. You may find that, unlike an auto policy, your homeowner’s insurance doesn’t include a flat-rate deductible. Some policies charge a percentage rate under certain circumstances. Say your house is insured for $300,000 and an earthquake strikes. If the insurer stipulates a deductible of five percent of the policy amount, you may be saddled with $15,000 in out-of-pocket costs before the insurance kicks in. Can you handle that?
Consider comparison shopping for your homeowner's insurance. Friends and family can often provide insight into how promptly insurance claims have been paid and whether policy payouts have been fair. Check online rating sites for insurance providers. Be especially wary if a particular insurer is routinely cited for substandard customer service. Above all, be proactive and don’t wait until the ground starts trembling.