Avoid These Common Mistakes and Save Smart!

Broadly speaking there are two “mistakes” we see consumers often make when purchasing homeowners insurance.

Maybe we could call them the two major considerations rather than mistakes. Those could be categorized as:

1. Choosing Proper Home Valuation and Loss Settlement Provisions
2. Choosing Proper Limits of Personal Liability Coverage

#1 Mistake: Proper Home Valuation and Loss Settlement Provisions:

All homeowners policies have Home Valuation requirements based on Loss Settlement provisions that determine how losses will be paid. Generally, the choices can be broken down into three main categories:

1. Replacement Cost (the Cost to Rebuild)
2. Repair Cost (Sometimes referred to as Modified Replacement or Market Value)
3. Actual Cash Value

Replacement Cost Settlement is loosely defined as the cost to replace items with new or like kind and quality. Losses under this type of settlement will not be depreciated once a replacement is made.

  Advantages: Replacement Cost Settlement offers the homeowners the broadest protection and choices on how the loss is settled.

  Disadvantages: The limits of coverage insurance companies are going to require will be much greater. Many times in our area the replacement cost will be significantly more than market value.

Repair Cost Settlement pays to repair or rebuild using materials and methods commonly used today. 

Advantages: Allows the homeowner to insure for a lower value, while still offering significant coverage limits.

  Disadvantages: Would not pay for building techniques or materials that are not commonly used. Ornate woodwork, full dimensional lumber won’t be paid for in the settlement.

Actual Cost Settlement pays for the cost of replacing items minus depreciation based on wear and tear, age and condition of those items damaged.

Advantages: May allow for the lowest limits of property coverage and a lower premium.

  Disadvantages: Settlement is subject to depreciation and the lowest payouts.

#2 Mistake: Choosing Adequate Personal Liability Coverage:

All homeowners policies also offer protection for the insured’s from lawsuits that happen during everyday interactions. The Personal Liability section of homeowners policies provides coverage in the event you or a resident of your household is legally responsible for injury to others or damage to others’ property. Due to our litigious society and in order to protect your assets and retirement, we recommend ample liability limits of coverage.

Because bodily injury lawsuits can result in very large financial losses, a high personal liability limit is always a wise choice. In many instances, the difference between $100,000 of liability coverage and that for $500,000 can be as little as $40 per year. Carrying high limits of liability coverage may be the best buy in insurance.

For more information regarding options available to home owners, please feel free to give us a call or refer to our resource document called “ Homeowners Insurance Coverage 101 ”!