Purchasing a home is an investment that has the potential to become an asset. Timely mortgage payments, keeping up with maintenance and making wise renovations are the most effective ways to ensure your residence remains a worthwhile investment. Though being a responsible homeowner sustains your asset, circumstances beyond your control can quickly turn it into a liability.
Theft, vandalism, structural damage, and natural disasters can destroy the property’s value and leave you with a hefty financial obligation. Luckily, products like homeowners insurance help reduce your out-of-pocket expenses, protect your prized possessions, and provide peace of mind.
What is Homeowners Insurance?
Homeowners insurance is a policy that provides financial coverage for the structure (home) and your personal belongings in the event of an unforeseen circumstance. These policies also cover liabilities and legal costs for injuries or property damage caused by you, other occupants, or outside parties.
Homeowners can also secure insurance that covers other expenses like floods and earthquakes. Policy costs will vary by your home’s value, coverage package, insurance provider, and other requirements outlined by the agency you choose.
Homeowners Insurance Mishaps
Insurance provides financial protection and relief for homeowners; however, it’s also a requirement to secure a mortgage in the US. However, you must do your due diligence to ensure you’re purchasing a policy that will provide you with the most advantages. Below is a look at some of the most common homeowners insurance mishaps to avoid.
Mistake #1: Choosing The Cheapest Policy
One of the most costly mistakes homeowners make when choosing an insurance policy is basing their decision on affordability. Though you must be able to cover the premium, you may need more than the cheapest package to provide you with the protection you need.
Evaluate what the policy covers compared to your out-of-pocket expenses. For instance, comparing an HO-3 to HO-5 policy will show you that the latter provides more coverage. Ultimately, it makes sense to pay a little more every month if it’s going to save you thousands in the long run.
Mistake #2: Not Understanding The Terms
Let’s be honest. No one likes reading contracts. The fine print and legal jargon can be hard to comprehend, not to mention time-consuming. Instead, you assume you’ve gotten the best deal possible and signed the agreement. However, failing to understand your policy and the terms can backfire when you’re in a jam.
Read your policy thoroughly before signing on the dotted line. If there’s something you don’t understand, ask a representative or attorney to provide further clarification. Ensure that you’re satisfied with the terms and that you’re able to handle your responsibilities (i.e., monthly rate, deductible, claims process, etc.).
Mistake #3: Guesstimating The Cost of Your Belongings
Homeowners insurance policies also provide financial coverage for your personal belongings. The amount covered will depend on the type of package you choose. However, if you don’t have any idea how much your possessions are worth, you could select an insufficient package.
Most insurance companies give customers the option to itemize and price their values before choosing a coverage amount; many take a wild guess. The problem with this is that if your policy only reimburses you for $10,000, but your possessions were worth $20,000, the remaining balance will be your responsibility.
Take the time to list your possessions and get an accurate value before deciding on a policy. You can use purchase receipts or check the manufacturer’s site to determine the current value. For anything you’re unsure of, research the average cost and use this amount.
Mistake #4: Assuming You Don’t Need Insurance
Homeowners insurance is required to get approved for a mortgage. However, if you’re paying for a property in cash, own the property outright, or have tenants with renter’s insurance, it’s easy to assume you can drop your coverage. However, not having insurance can be costly.
Remember, the policy covers the property and your belongings in unforeseen circumstances. Whether you’re a property manager or a homeowner without a mortgage, getting coverage to protect your asset is still in your best interests.
Home buyers have a variety of financial obligations and responsibilities. The costs are ongoing, from mortgage payments and property taxes to maintenance and other monthly expenses. As such, you want to keep those costs to a minimum. An adequate homeowners insurance policy provides financial protection in emergencies, which can reduce financial burdens. Of course, that means ensuring you don’t make the costly mistakes above.
