10 Mistakes New Homeowners Make with Insurance (Don’t Be One!)

Buying a home is one of the biggest investments you will ever make. It is also one of the most complex and risky. That is why you need to have the right insurance to protect your property and your finances. However, many new homeowners make mistakes with their insurance that can cost them a lot of money and headaches in the future. Here are 10 common mistakes that you should avoid when buying or renewing your home insurance.

1. Not Shopping Around
One of the biggest mistakes new homeowners make is not shopping around for the best insurance deal. Many people simply go with the first quote they get or the one recommended by their lender or realtor. However, this can result in paying more than you need to or getting less coverage than you need. You should compare at least three different quotes from different insurers and agents before making a decision. You should also check the ratings, reviews, and complaints of the insurers you are considering. You can use online tools such as Bing, NerdWallet, and Insure.com to find and compare home insurance quotes.

2. Not Reading the Policy
Another common mistake new homeowners make is not reading their policy carefully. Many people assume that their policy covers everything that can happen to their home, but this is not always the case. There are many exclusions, limitations, and conditions that can affect your coverage and your claims. You should read your policy thoroughly and understand what is covered and what is not. You should also ask your agent or insurer any questions you have about your policy and get the answers in writing.

3. Not Updating the Policy
Another mistake new homeowners make is not updating their policy when their circumstances change. For example, if you renovate your home, add a pool, buy expensive items, or rent out a part of your home, you should inform your insurer and adjust your coverage accordingly. Otherwise, you may be underinsured or overinsured, which can result in paying more premiums than you need to or not getting enough compensation in case of a loss. You should review your policy at least once a year and whenever you make any significant changes to your home or your lifestyle.

4. Not Getting Enough Liability Coverage
Another mistake new homeowners make is not getting enough liability coverage. Liability coverage protects you if someone gets injured or sues you because of something that happens on your property. For example, if your dog bites a neighbor, your tree falls on a car, or your guest slips and falls on your stairs, you could be held liable for the medical bills, legal fees, and damages. The standard liability coverage in most home insurance policies is $100,000, but this may not be enough to cover a serious lawsuit. You should consider increasing your liability coverage to at least $300,000 or more, depending on your assets and risk factors. You can also get an umbrella policy, which provides extra liability coverage beyond your home and auto insurance limits.

5. Not Getting Enough Replacement Cost Coverage
Another mistake new homeowners make is not getting enough replacement cost coverage. Replacement cost coverage pays for the cost of rebuilding or repairing your home with similar materials and quality, without deducting for depreciation. This is different from actual cash value coverage, which pays for the market value of your home, minus depreciation. Replacement cost coverage is more expensive than actual cash value coverage, but it can save you a lot of money if your home is severely damaged or destroyed. You should make sure that your replacement cost coverage is enough to cover the full cost of rebuilding your home, based on the current construction costs and codes in your area.

6. Not Getting Flood Insurance
Another mistake new homeowners make is not getting flood insurance. Flood insurance covers the damage caused by flooding from natural disasters, such as hurricanes, storms, or heavy rains. Flood insurance is not included in most standard home insurance policies, and you need to buy it separately from the federal government or a private insurer. You may think that you don’t need flood insurance if you live in a low-risk area, but flooding can happen anywhere and anytime, especially with the effects of climate change. According to the Federal Emergency Management Agency (FEMA), more than 20% of flood claims come from properties outside of high-risk flood zones. You should check the flood risk of your area and consider getting flood insurance if you are not already covered.

7. Not Getting Earthquake Insurance
Another mistake new homeowners make is not getting earthquake insurance. Earthquake insurance covers the damage caused by earthquakes, such as cracks, collapses, or fires. Earthquake insurance is not included in most standard home insurance policies, and you need to buy it separately from a private insurer. You may think that you don’t need earthquake insurance if you live in a low-risk area, but earthquakes can happen anywhere and anytime, especially with the effects of plate tectonics. According to the United States Geological Survey (USGS), 42 states are at risk of earthquakes, and 16 states are at high risk. You should check the earthquake risk of your area and consider getting earthquake insurance if you are not already covered.

8. Not Getting Home Warranty
Another mistake new homeowners make is not getting home warranty. Home warranty is a service contract that covers the repair or replacement of major home systems and appliances, such as heating, cooling, plumbing, electrical, and kitchen appliances. Home warranty is not the same as home insurance, which covers the damage caused by perils, such as fire, theft, or vandalism. Home warranty is optional, but it can save you a lot of money and hassle if your home systems or appliances break down due to normal wear and tear. You can buy home warranty from a private company, either when you buy your home or later on. You should compare the coverage, cost, and reputation of different home warranty providers before choosing one.

9. Not Getting Enough Deductible
Another mistake new homeowners make is not getting enough deductible. Deductible is the amount of money you have to pay out of your pocket before your insurance kicks in. The higher your deductible, the lower your premium, and vice versa. Many new homeowners choose a low deductible to avoid paying a lot of money upfront, but this can result in paying more money in the long run. A low deductible means that you will file more claims, which can increase your premium and reduce your chances of getting discounts or renewals. A high deductible means that you will file fewer claims, which can lower your premium and increase your chances of getting discounts or renewals. You should choose a deductible that you can afford to pay, but not so low that you will file claims for every minor damage.

10. Not Getting Enough Discounts
Another mistake new homeowners make is not getting enough discounts. Discounts are reductions in your premium that you can get for various reasons, such as having a good credit score, bundling your home and auto insurance, installing security or safety devices, being a loyal customer, or being a member of a certain group or organization. Discounts can vary by insurer, state, and policy, but they can save you a lot of money on your home insurance. You should ask your agent or insurer about the discounts that you are eligible for and how to apply for them. You should also review your discounts regularly and update them if your circumstances change.

These are 10 mistakes that new homeowners make with insurance, and how to avoid them. By following these tips, you can get the best coverage for your home and your budget, and avoid any unpleasant surprises or regrets in the future. Remember, your home is your castle, and you need to protect it well. blush

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