One of the biggest mistakes you can make as a homeowner is not getting enough home insurance coverage. There are a few ways it can happen, and discovering that you did not have enough coverage can be very costly or even lead to losing your house.
Getting caught underinsured in the wake of a fire, flood, or natural disaster is too expensive of a mistake to make. As a homeowner, you are responsible for making sure you have sufficient coverage, but it may not always be clear.
This guide will show you what to look for in your fire insurance coverage and the most common reasons you may find yourself underinsured. If you notice your policy lacking anywhere, get in touch with your insurance broker right away to discuss making changes.
The Deductible Is Too High
One of the first things to look at in your home fire insurance policy is the deductible. A deductible is what you have to pay out of pocket to recover from a loss before the insurance company will contribute anything.
Deductibles are designed to deter homeowners from claiming every minor loss and encourage them to reserve their policy for major losses. Sometimes homeowners can save on their monthly or annual premiums by raising their deductibles, but this is a risk.
If you cannot afford to pay all of your deductibles in the event of a total loss, you are underinsured. There are two options you have to correct this. First, you can talk to your insurance provider about raising your premiums in exchange for a lower deductible.
Alternatively, you can focus on building an emergency savings fund that you can dip into in the event of a loss. The advantage of an emergency savings fund is that you may be able to collect interest on it, and it can be used for other emergencies, but you need to be strict about keeping it for that deductible.
The Coverage Limit Is Too Low
In the event of a total or major loss, your coverage limit will become a very important element in your home insurance policy. Many home insurance policies limit how much they will pay out, even if you have further out-of-pocket costs to recover.
If you are worried about your coverage limit being too low, try getting quotes from local builders about how much it would cost to rebuild per square foot in your area. This should give you a sense of how much you could wind up paying in a total loss. Construction costs have changed considerably in recent years, and it’s important to check to make sure your policy has kept up.
The Policy Does Not Include Significant Perils
An important element of every home insurance policy is the named perils. This is a list of all of the reasons for loss that your policy will cover.
You should make sure that the named perils match the risk factors for your home. If you live in an area that’s prone to flooding or sewer backups, ask about adding flooding protection.
Alternatively, you can inquire about an all-perils or all-risks insurance policy. This is a policy which covers all types of loss unless they are explicitly excluded. For example, an all-perils policy may typically exclude things like acts of war but will cover any other type of loss not named.
When you review your home insurance policy, these are the top candidates to check to avoid being caught underinsured.