Homeowners often misunderstand exactly what their home insurance policy covers. To avoid nasty surprises after a loss, make sure you know what is and is not covered by your policy.
Common home insurance myths include:
1. After a covered loss, insurance replaces everything.
Insurance pays for losses based on the terms of your policy. Some items, like jewelry, guns and furs, are excluded or receive limited coverage in a basic policy. You must buy extra insurance to fully cover these items.
In addition, a cash value policy factors in depreciation and pays only what your home and possessions were worth when the loss occurred. A replacement cost policy will pay the full dollar amount to replace all covered items.
2. Sewer backups are covered.
Most policies exclude sewer backups. Some offer limited coverage for backups originating off the property.
3. Mold damage is covered.
Again, most mold damage is excluded from a typical homeowner’s insurance policy. There may be some limited coverage, especially if the mold results from a covered loss.
4. Insurance is a waste of money if you don’t use it.
Insurance may be the one product you don’t want to get your money’s worth out of. It’s intended as a cushion in case of emergency. Too many small claims may increase your premiums or even get you dropped completely.
5. Filing a claim will increase your premiums.
The cousin to myth #4. While multiple small losses may trigger premium increases, one claim for a significant loss is unlikely to do so. The big loss is why you have insurance.
6. Disaster insurance (flood, earthquake, etc) is not necessary, because the government will step in.
Government disaster relief typically covers only a fraction of the actual recovery costs, and you may find it difficult to pay both your mortgage – you do still have to do that – and additional living expenses while your home undergoes repairs.
Also, government aid consists of low-interest loans, not free money.
7. Liability insurance is unnecessary.
Liability insurance protects your assets if a guest is injured on your property, regardless of fault. Without insurance you could lose everything in a lawsuit.
8. A home’s purchase price is a good guide for determining necessary coverage.
The purchase price includes the land, which will still be there even if the building is a total loss. Home insurance should cover only the building and its contents.
9. The only way to save money is to get less coverage.
Skimping on coverage could be costly in the long run. Instead, look into discounts. Many companies offer them for having safety features like smoke detectors and burglar alarms, for insuring both auto and home with them and even for not smoking.
10. Insurance companies pay claims based on what you say you owned.
Insurers want proof of what you owned, and the more documentation you can provide (date purchased, price, serial numbers) the more likely you will be reimbursed. Create a list before a loss.