IMG_5699Whether it’s your first time buying homeowner’s insurance or it’s a song and dance you’ve done before, it’s possible to make mistakes. Not all home insurance policies are created equal, and the worst time to find out what your policy does and doesn’t cover is when you’re hoping to file a claim. We at Insurance SCV have provided you below with a few common mistakes people make when buying home insurance:
Assuming the Home has Flood Insurance
California has been going through a horrible drought these past several years, and that probably left homeowners somewhat less concerned with flood or flood-related insurance. Unfortunately for these folks, when heavy rains decided to show up this year, a lot of them were left up the creek without a paddle.
If you’re not sure whether or not your homeowner’s insurance covers you in the case of a flood, you may want to check. (By the way, earthquake and earth movement are perils that are also excluded.)
Misunderstanding Your Deductible
If you think your deductible is a flat rate you have to pay in the event you file a claim, you’re only half right. Usually, your deductible will be just that – a flat rate. However, with some insurance carriers your deductible may be a percentage like 1%. So if your home is insured for $500,000, your deductible would be $5000. In other instances, your deductible may just be higher than what you remembered – $5000 or $2500 when your thought it was $1000. (Home insurance deductibles are usually never written for less than $1000 these days.) It’s a good idea to check your policy to find out.
Underinsuring the House
This is the final mistake on our list, but it’s the most egregious. Your insurance agent determines the amount of insurance – so how does she arrive at this figure? Your agent utilizes industry software to calculate the amount of insurance needed to rebuild your home – this is usually quite different from the market value. Additionally, most policies offer an endorsement called “Extended Replacement Cost” (ERC) usually in the amount of 150%, but sometimes as low as 125%. This means that if your home is insured for $500,000 and you have ERC of 125%, then you would be covered up to $625,000 in the event of a total loss. With the ERC endorsement, you should have enough coverage, but this is not always the case and you could still be underinsured.
Two very important side notes to the above –
- Earthquake insurance does not come with ERC and it’s usually a requirement that the coverage limits match the home insurance limits – so if your home insurance dwelling coverage is $500,000, your earthquake coverage limit is $500,000 – and without the earthquake ERC, you could very well be underinsured. When we quote new clients at Insurance SCV, we see often see this scenario.
- Insurance policy contracts require that homes be insured for whatever the replacement cost is. The ERC is not meant to be used as a means to reach the necessary coverage amount in an effort to save premium dollars. You want to be sure you have this right.
These are only 3 of the many potential mistakes that can be made when you buy home insurance. If you have additional questions or concerns about buying homeowner’s insurance, stop on by our Santa Clarita office or give Carol a call at 661-803-3803 for a free quote!