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Written by Andy Gurczak

August 1, 2021

Insurance Myth: Busting Insurance Misconceptions

There are a lot of misconceptions surrounding homeowners insurance. Such as what it actually does and does not cover, how it covers certain property damage, whether or not you legally need it, etc. Understanding that these home insurance myths are far from the truth is absolutely essential when you’re a homeowner. If you have inadequate coverage or a misunderstanding of what your policy will cover, you could get caught in a very unfortunate position down the line. Conversely of what you may have heard, homeowners insurance is essential financial protection for you, your home, and your personal property. This is why down below, you will find a few of the most common insurance myths people believe and the truth about them.

Insurance Myth Fact or Myth

Insurance Myth #1:Homeowners Insurance is Required by Law

Homeowners insurance is, in fact, not required by law in any of the 50 states. However, most mortgage lenders do require you to purchase a certain amount of homeowners insurance coverage before approving a mortgage. By requiring you to have homeowners insurance, lenders are protecting their investment in your home. Moreover, lenders know how expensive it is to rebuild a home and that most people wouldn’t be able to afford those costs out of pocket.

Insurance Myth #2: Homeowners Insurance is too Expensive

According to the NAIC, homeowners insurance costs an average of $1,200 a year. Nevertheless, many insurance companies do offer various discounts to make your premiums more affordable. For example, many insurers offer safety discounts. So if you install fire alarms in your home, you may get some money off your premium. Furthermore, some insurers may also offer home improvement discounts, such as replacing your old roof or installing storm proof windows. In addition, insurers also offer discounts for going a certain amount of time without filing any claims.

Insurance Myth #3: Homeowners Insurance Isn’t Worth It

For many people, their home is the largest single investment they’ll ever make. Therefore, it is probably the best idea to have a financial safety net to protect this investment. Homeowners insurance can wind up saving the homeowner hundreds of thousands of dollars. To illustrate, imagine a storm knocks a tree over and demolishes half your house. Your homeowners insurance can pay to rebuild your home, help pay to replace destroyed personal belongings, and pay for any additional living expenses you incur on during the repair process.
In addition, homeowners insurance also protects you from liability. Consequently, if a guest gets hurt on your property and decides to sue you, your homeowners insurance can help cover legal costs.

Although all these scenarios are hypothetical, they are still real dangers. Owning a home comes with a lot of unknown, costly risks. Basically, it’s worth it to have insurance, even if you still hope you never have to file a claim. In conclusion, protecting yourself in the event of a disaster of some kind is never a waste of money.

Insurance Myth #4: You Can Not Buy a Home without Buying Home Insurance.

Like we mentioned before, most lenders may require you to purchase home insurance, but it is usually up to the homeowner to get proper insurance.

Insurance Myth Making Repairs Yourself

Insurance Myth #5: You Can Make the Repairs Myself, Therefore I Don’t Need Insurance

Even if you are a skilled builder, contractor, or handyperson, that doesn’t mean you’ll be able to afford to pay out of pocket for every repair. Although sometimes it makes more sense to make the repairs yourself instead of filing a claim and paying your deductible, it is not always the case.For instance, you likely don’t want to pay out of pocket to replace your roof after a tornado. Or as another example, you definitely don’t want to be stuck replacing valuables after a burglary.

Insurance Myth #6: You Don’t Need to Reshop my Homeowners Insurance

Many people assume once you have a homeowners insurance policy, you have to keep the same policy indefinitely. Although this might work for some, it is actually not the best approach. In fact, reshopping for homeowners insurance should take place every one-to-two years. As a result, you could end up saving money if you find the same coverage at a better rate. Or you might discover that your home is currently underinsured.

Insurance Myth #7:Homeowners Insurance Covers Flooding

Despite what many people believe, homeowners insurance does not cover flood damage. If a flood damages your home, you actually can’t file a claim with your standard homeowners insurance policy. For this reason, in order to protect your home and personal property from flood damage, you’d need to purchase a flood insurance policy.

Insurance Myth #8: Flood Insurance Is Only for Those Who Live in Flood Zones

If you don’t live in a flood zone, that doesn’t mean that you aren’t in danger of having flood damage. Indeed, flooding can happen anywhere.

Government-backed mortgage lenders require homes and businesses to have flood insurance when they are located in high-risk flood areas. However, just because you aren’t required to have flood insurance, does it mean that you don’t need it. did you know, that in fact, 20% of flood insurance claims are made for properties that aren’t located in flood zones.

So whether your house sits upon a 25, 50, or 100 year flood zone, or it doesn’t stand in a flood zone at all, flood insurance could be a lifesaver.

Flooding is also common in places where hurricanes are common. For this reason, having flood insurance in a hurricane-prone area is a must.

Insurance Myth #9: All Your Belongings Are Covered By Homeowners Insurance

Home insurance policies do cover your personal belongings. Nevertheless, it’s important that you read the fine print to be fully aware of what’s covered and what isn’t. More often than not, there are limits to coverage, and certain types of losses might fall beyond those limits. In the same way that having home insurance doesn’t cover every type of disaster or occurrence, your home insurance policy won’t necessarily cover all of your possessions. If you have specific valuable collections, you might have to add coverage for these. For this reason, it’s a good idea to make an inventory of all of your possessions and ensure coverage.

Insurance Myth Expensive Items

Insurance Myth #10: Your Homeowners Policy Will Automatically Cover Stolen Items, No Matter How Expensive they Were

Homeowners insurance covers stolen personal belongings, whether the theft was on or off your property. For example, if someone steals your camera at a park, your insurance could help pay to replace it. Even though the burglary didn’t take place inside your home, homeowners insurance is meant to cover it.

However, as we mentioned before, homeowners insurance does have special sub limits on how much you can be paid out for certain categories of valuable items. Such as jewelry, art collections, or expensive technology.

For example, let’s say your coverage limit for jewelry is $2,000. But the ring stolen from you is worth $6,000, then,your homeowners insurance would only reimburse you $2,000 maximum.

Nevertheless, you can add extra coverage for your valuable items. Policy endorsements help you make sure all your belongings are properly protected.

Insurance Myth #11: Dwelling Coverage is Based on the Purchase Price of your Home.

No, you should not base your insurance coverage on how much you bought it for. Instead, the insurance company should base your dwelling coverage on the replacement cost of your home. In fact, your dwelling coverage shouldn’t even include the value of the land on which your property is located. Replacement cost is usually calculated by multiplying the square footage of the home by current local construction costs.

Insurance Myth #12: The Amount of Homeowners Insurance You Need is Based on the Market Value of Your Home

This is also false. As mentioned above, your insurance company should base the amount of insurance coverage you need on the rebuild cost of your home. Thus meaning the amount of money it would cost to fully rebuild your home in the event it is completely destroyed. How much you bought your house for, or how much it’s current market value currently is, does not affect how much homeowners insurance you need.

For example, if you were to live in a hot market where prices are rising quickly, and you insure your house by the current market value, you’ll be overpaying for your insurance. On the other hand, if you live in a place with a depressed market, you will end up under-covering your home.

Insurance Myth #13: The Premium Goes Up Every Time a Claim Is Filed

It is highly unlikely a single claim will raise your premiums. On the other hand, if you file multiple claims it’s very probable your insurance company raises your premiums. Therefore, it is important that you estimate the costs of the repairs before filing a claim. This is because if the loss is less than your deductible or just a little bit over, you will probably want to pay for it yourself instead of filing an insurance claim.

Insurance Myth #14: To Lower Your Insurance Premium, You Have to Lower Coverage

This is a big mistake! You should not lower your coverage to save money on your premium. It is essential that you have adequate insurance coverage for your property. Like we said before, there are different ways you can lower your premium without reducing your coverage. Like for example, you could agree to a higher deductible, therefore lowering your premium.

Insurance Myth #15: Home Insurance Will Replace Your Belongings Like New

In this case, you’ll want to take a look at your home insurance policy. It’s possible that your belongings are covered for their Actual Cash Value (ACV). Consequently, the value of your belongings is considered to be the current, depreciated value. And in fact, not what they cost when they were brand new. Furthermore, the amount you receive for your possessions might not be enough to replace them.

Insurance Myth #16: Your Medical Expenses Are Covered in Case of Injury

Many people think the medical payment portion of your policy refers to covering your own expenses if you were to get injured on your own property. However, this is not the case at all. Instead, this part of the policy only protects you if a guest gets hurt. In the case that you or a family member gets injured, you would have to call upon your health insurance.

Insurance Myth #17: Making an Inventory List of Your Possessions Is a Waste of Time

First and foremost, if you were to file a claim for damaged property, an inventory list of your possessions can help you prove that you owned them in the first place. It might be hard to prove destroyed purchases. Making an inventory before you need to make a claim can help make the process go smoother and ensure that you receive the reimbursement you deserve.

Insurance Myth Mold Damage

Insurance Myth #18: Home Insurance Covers Damage Caused By a Lack of Maintenance, Including Mold

As a responsible homeowner, you are expected to reasonably maintain your home. For this reason, poor maintenance is not something that homeowner’s policies cover. Home insurance does not cover mold or other damages caused by poor maintenance. To prevent such damages, we encourage you to inspect your home regularly. Take fire safety precautions, look for leakages and prevent water damage due to lack of maintenance.

Insurance Myth #19: Homeowners Insurance Covers Termites

As mentioned above, homeowners insurance is designed to protect you from sudden and accidental damage. For this reason, your insurance policy doesn’t cover termite damage or any type of pest infestations. This also includes bats, mice, rats, etc.

Pest infestations happen from time to time so insurance companies consider them preventable. In fact, homeowners insurance excludes coverage for any type of maintenance issues, as well as regular wear and tear. Because insurance companies expect homeowners to be responsible for the proper upkeep of their property, they do not offer this type of coverage.

Insurance Myth #20: Older Homes Are Cheaper to Insure

Despite it makes sense that it would be cheaper to buy insurance for older houses, this is not always the case. That’s because older homes can cost more to repair than newer construction homes because of different construction techniques.

Older homes might have things like stained glass, plaster, hardwood floors, and crown molding. Comparatively, a newer construction home will likely have simpler and cheaper construction methods like wood veneer floors and drywall. An older home could also be a risk for more complex and expensive claims due to the regular wear and tear of things.

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