As a homeowner, you likely have a homeowners insurance policy. You may have purchased the policy because your mortgage lender required it, or because you wanted to protect your new abode. So, you’re all set in the event of an accident, right? Not exactly. It’s easy to treat insurance like something you can “get and forget,” but neglecting to regularly update your policy or find a more fitting one using a homeowners insurance calculator can put you at risk of paying out of pocket when disaster strikes.
As CNBC reports, CoreLogic recently found some surprising statistics to illustrate the prevalence of under-coverage in the homeowners insurance market:
What can cause a home to be underinsured over time? As Consumer Reports notes, factors like rising costs associated with labor and construction, as well as adding value with renovations or additions can all affect the worth of your home and the cost it would take to rebuild. Basically, any changes in your living situation, possessions or home structure itself may be signs your home is underinsured.
Many homeowners assume having a policy is enough, and some even go so far as to do anything necessary to keep their annual premiums low. While this does shave the cost of insurance premiums, it can lead to a cash catastrophe if you ever have to file a claim. One large covered event and suddenly homeowners have to pay a sum out of pocket much larger than the money they saved on their premiums.
A better strategy is to make sure your policy has ample coverage and a deductible with which you can live, given your current financial situation. For example: Do you know off the top of your head whether your policy has replacement cost coverage or actual cash value coverage? There’s a significant difference in how each respective policy pays out claims. While replacement cost policies pay to replace a home at its present value, actual cash value factors in depreciation—which can be significant over time.
It’s also important for policyholders to understand their policy type. The classifications range from H-01 (basic coverage against only covered perils) to H-08 (designed for older homes). While an H0-3 is the most popular because it represents the minimum amount of coverage required by mortgage lenders and is an open perils policy minus exclusions, some homeowners with more expensive possessions or a different type of ownership situation (a condo, for instance) require a different type of policy. Knowledge is power when it comes to making informed decisions about your policy.
Want to avoid joining the ranks of policyholders with insufficient coverage? Use CoverHound’s homeowners insurance calculator to generate free personalized quotes today!