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What are the Most Common Mistakes Consumers Make When Purchasing Homeowners Insurance?
October 7, 2021
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:
- Choosing Proper Home Valuation and Loss Settlement Provisions
- 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:
- Replacement Cost (the Cost to Rebuild)
- Repair Cost (Sometimes referred to as Modified Replacement or Market Value)
- 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
”!
Homeowners Insurance FAQ
What are the main types of home valuation methods in homeowners insurance?
- There are three primary home valuation methods used in homeowners insurance:
- Replacement Cost: Covers the cost to rebuild your home with new materials of similar kind and quality, without depreciation.
- Repair Cost (Modified Replacement Cost/Market Value): Covers repair or rebuilding using common materials and methods.
- Actual Cash Value: Pays the replacement cost minus depreciation based on wear and tear, age, and condition of damaged items.
What are the advantages and disadvantages of Replacement Cost valuation?
- Advantages: Offers the broadest protection and choices in loss settlement, providing full replacement without depreciation.
- Disadvantages: Requires higher coverage limits, potentially leading to a higher premium.
What are the advantages and disadvantages of Repair Cost valuation?
- Advantages: Allows for lower coverage limits and potentially lower premiums compared to Replacement Cost.
- Disadvantages: May not cover the cost of unique or high-end building materials and techniques.
What are the advantages and disadvantages of Actual Cash Value valuation?
- Advantages: Offers the lowest coverage limits and potentially the lowest premium.
- Disadvantages: Settlements are subject to depreciation, resulting in the lowest payouts.
Liability Coverage
What is Personal Liability coverage in homeowners insurance?
Personal Liability coverage protects you from lawsuits arising from injuries to others or damage to their property that occur on your property or due to your actions.
Why is it important to have adequate Personal Liability coverage?
Bodily injury lawsuits can result in significant financial losses. Having high Personal Liability limits helps protect your assets and retirement savings in case of a lawsuit.
How much Personal Liability coverage should I have?
While the required minimums may be low, it's generally recommended to have at least $300,000 to $500,000 in coverage. Higher limits often come with a relatively small increase in premium.
Where can I find more information about homeowners insurance options?
Contact your insurance agent or broker to discuss your specific needs and the available coverage options in your area. You can also refer to resources like "Homeowners Insurance Coverage 101" for a more in-depth understanding.
"What are the Most Common Mistakes Consumers Make When Purchasing Homeowners Insurance?" Deep Dive Podcast
The content in this article, including the podcast and FAQ, was created by the staff at The Ryan Agency, with portions generated using artificial intelligence. This information is for general informational purposes only and should not be relied upon as professional advice. For guidance specific to your situation, please consult your policy documents and an insurance professional. The Ryan Agency, Jeff Ryan, and our staff expressly disclaim any liability for actions taken or not taken based on this content without consulting your policy or an insurance professional.
This article may have been originally published at Quora.com.
To see Jeff's Quora.com profile click here.
“Am I covered if I drive someone else’s car?” Or, “Am I covered if someone else drives mine?”
Many don’t realize that the insurance industry is one of the country's most regulated business segments, especially in New York State. The New York State Department of Financial Services (NYS DFS) wields significant control over the insurance business and has a stated goal of protecting consumers.
Most property insurance companies offer Actual Cash Value or Replacement Cost settlement options. Typically, insurance companies will require that you insure the property to the settlement value you choose. If you select Actual Cash Value, the amount you may be required to insure the property for will be less than the corresponding Replacement Value.
In that spirit, the Ryan Agency is sponsoring a Stearns BBQ Dinner pickup at our office on 57 Broadway Mall in Hornell on September 12th from 3:00 PM to 4:30 PM.
Today, an individual’s credit history can play a more significant role than any one of those traditional factors. Good Credit Scores lead to a Positive Insurance score. A good Insurance Score greatly influences what someone will pay to insure their vehicles.
Insurance companies offer various discounts for which their policyholders may qualify.
Great Eight number Six (6) suggests taking a look at removing Comprehensive and Collision on Older Vehicles.
By reducing the number of claims in your insurance history, you can significantly affect your rates in the future.
Sometimes, this concept meets with resistance from policyholders. The thought of paying more in the event of a claim is off-putting to some. Even if that means I pay more for my insurance.
OK. Admittedly, this strategy doesn't benefit everyone, but it can be very beneficial for those it does. You may have unique home or auto insurance needs that prevent you from bundling with the same company. Alternatively… you might have a better rate without the bundle discount by splitting up your insurance between multiple carriers.
