Avoid these pitfalls in your home insurance policy
Your home insurance policy is one of the most important financial products you can have. If your home or belongings are damaged by fire, smoke, water, or extreme weather events, or if someone is harmed on your property, your home insurance policy provides compensation that can protect you from devastating financial consequences.
However, it may not cover everything you think it does. Getting caught underinsured can lead to you paying out of pocket for expenses you can’t afford. You can wind up deeply in debt if you’re underinsured after a loss.
Below are some of the most common reasons homeowners are underinsured and not even aware of it.
Actual Cash Value Policy
There are two ways your policy can cover both belongings and construction costs: Actual Cash Value and Replacement Cost. Policies that provide Replacement Cost cover the cost to replace lost belongings and repair damage. For example, if it costs $5,000 to install a new roof after a fire, your policy will cover the whole cost, minus your deductible.
A policy that provides Actual Cash Value for damage will only pay out the depreciated value of the belongings or damaged structure. For example, it would cost you $5,000 to install a new roof, but your roof was installed 10 years ago and has lost half its value. You would only receive $2,500 from the insurance company.
You may also find that the insurance adjuster has over-depreciated your belongings or the structure of your home. You can be dealing with an extensive list of items that is hard to keep track of. You may want to enlist the help of an insurance lawyer such as Virani Law that specializes in insurance claims.
Contents Coverage Limits for Valuables
Do you have large amounts of jewelry or other valuables like fine art, furs, cash, or gold bullion stored in your home? These valuables are likely subject to special coverage limits in your policy. Even if your coverage for personal belongings is, for example, $50,000, jewelry may be subject to a $3,000 limit. Anything beyond that would not be covered, even if you had not yet reached your general contents coverage limit.
To fully insure these valuables, you will need to talk to your insurer about extending coverage.
Flood Insurance & Sewer Backup Coverage
While water damage is often included in home insurance policies, you may not have either flood insurance or coverage in the case of a sewer backup. This can be a point of confusion for many policyholders. Water is water, after all.
However, flood insurance usually covers water damage caused by overland flooding, which is when a body of water overflows its banks. Sewer backup coverage is when the damage is caused by municipal sewage systems reversing the flow, causing wastewater to enter your home. Basic water damage refers more to damage caused by a leaking roof or pipes. It’s a good idea to go over the specifics of your claim and make sure that you are covered for everything that’s likely to damage your home. Check out flood maps of your city and find out if sewage backup is common in your neighborhood.
