A friend of mine recently sent me an article he just found in an old issue of Forbes Magazine in a doctor’s office dated February, 2013.
The article was titled: “4 Costly Mistakes to Avoid in Home Insurance.” Now I understand there is a section in Forbes called personal finance, but this one sparked my interest for a number of reasons. The author, a well known contributor of the magazine, warns the public about the danger of “Fine Print.” I’m not so sure we use fine print anymore in an insurance policy with so many government regulations against that, but I decided to take apart the “mistakes” one at a time to see if there is any validity to any of them.
#1 – Underinsuring your home
The author references a study that was conducted in 2009 which said that 66% of all US homes are underinsured.
I would have to say this five year old study is false. Insurance companies writing home insurance policies insist that homes be insured to their full replacement value. Carriers over the last 10 years have equipped just about all independent insurance agencies with the technology to calculate replacement cost within their offices. Insurance companies are also inspecting just about 100% of all new business to also be sure that the home is insured to value. While there is sometimes a difference of opinion as to the correct replacement value, those situations are far fewer now that the software is more accurate.
All policies today also include automatic inflation protection provisions by which the replacement value is increased yearly based on the increased cost of construction.
#2 - Assuming you have flood insurance
As an independent agent whose office is located on the Jersey Shore it has become common practice with all of us in this industry to offer flood insurance to everyone. Regardless whether or not the home you are looking to insure is located in a special flood hazard area. In today's insurance environment we tell our clients everyone is located in a flood zone. Whether you choose to purchase flood coverage or not is a decision that you, the consumer, must make. Rest assured we are going to offer it to you regardless. However, it is mandatory if you are in a special flood area and are obtaining mortgage financing.
The author of the article is correct that flood is not part of a home insurance policy. During hurricane Irene in 2011 several non-coastal areas were seriously flooded. If your home is not located in a flood hazard zone the cost of obtaining flood insurance is very inexpensive and can automatically give you the extra protection you need.
For more information on flood insurance, check out our free report, "What is Flood Insurance."
#3 - The mistake of thinking you have one, flat deductible
The author of the article thinks that in this post-Hurricane Sandy era, flat deductibles should be obtainable no matter what. That would be false! With the ever-changing weather patterns, the era of one deductible for every type of peril (loss) on a policy is just about gone. Suffice it to say there will be a deductible for wind/hurricane and a separate deductible for all other types of losses.
The key here is to ask your agent to explain the difference between a windstorm deductible and a hurricane deductible. You should also shop to see who has the least costly percentage deductible on wind and or hurricane. Flood insurance does not have a percentage deductible; it is a flat dollar deductible whereas hurricane deductibles are usually a percentage and it kicks in based on the category of a storm.
Some policies will indicate that the windstorm deductible does not kick in unless the wind is calculated at 92 mph or higher. The key point here is to ask the independent agent to describe a scenario where the higher deductible will kick in.
#4 - The mistake in believing you are covered for mold and sewage backup
This I will have to agree with the author on. Several carriers will give you automatic coverage for claims involving mold whereas other carriers may put a separate limit on it. It is good to ask the question when reviewing the coverages on your home insurance policy with your agent.
The same goes for sewer backup; a clog forms in the main sewer line in your street sending raw sewage backup through sinks and toilets causing thousands of dollars worth of damage. Most carriers give automatic coverage for this while others will make it available for an additional premium.