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Common Homeowners Insurance Mistakes to Avoid

The cost of homeowners insurance is on the rise, with some insurers increasing rates by nearly 15% in 2023, according to S&P Global Market Intelligence. Making the wrong decisions when purchasing homeowners insurance could cost you even more. Here are nine homeowners insurance mistakes to steer clear of, including underestimating your coverage needs, ignoring exclusions, and neglecting to shop around.

1. Underestimating Your Insurance Needs

Homeowners insurance generally covers the following:

• Your dwelling: The cost of repairing or rebuilding your home’s structure.
• Personal property: The cost of repairing or replacing damaged or stolen possessions.
• Additional living expenses: The cost of living elsewhere during home repairs.
• Liability: Legal and medical expenses if a visitor is injured on your property.

Standard coverage amounts may not offer the protection you need, but you can purchase more of each type of coverage. Your dwelling coverage should equal your home’s replacement cost value, not its market value or mortgage balance. To protect yourself from rising construction costs, consider additional coverage to cover rebuilding expenses exceeding your home’s replacement cost value.

2. Not Understanding Exclusions

Home insurance generally doesn’t cover damage caused by earthquakes, floods, sinkholes, landslides, or water backup due to a failed sewer, sump pump, septic tank, or drain. You can buy standalone insurance policies for these events. Water backup insurance may be available as an endorsement or separate policy from your insurance carrier. Always read your policy carefully and ask for explanations of anything you don’t understand.

3. Setting Your Deductible Too High or Too Low

When you file a home insurance claim, the insurer subtracts the amount of the deductible from your payout. Homeowners insurance deductibles may be a set dollar amount or a percentage of your dwelling’s insured value. You can often adjust your deductible higher or lower. A lower deductible means higher premiums but less out-of-pocket expense during a claim. A higher deductible can reduce your premiums but increase your out-of-pocket costs. Evaluate your budget and savings to strike a balance.

4. Not Shopping Around

If you bought your homeowners insurance years ago and haven’t switched since, you could be missing out on savings. Shopping around for a more affordable policy every year or two, or whenever your insurer increases your premiums, could pay off. Contact insurance agents or brokers, or visit insurance company websites to get quotes online. Save time by using an online marketplace to compare quotes from multiple providers.

5. Not Checking for Discounts

Regularly checking with insurers for discounts can uncover new ways to save. You might get discounts for loyalty, being retired, or going claim-free for a certain period. Making changes that reduce your home’s risk, such as adding a security system, replacing an old roof, or installing storm shutters, can reduce your rates. You can also save by bundling multiple insurance policies from the same carrier. Finally, find out if your employer or membership groups offer homeowners insurance discounts.

6. Buying Home Insurance Based Solely on Price

Low-priced home insurance won’t seem like such a good deal if you can’t get assistance for a claim. Before buying home insurance, read customer service ratings and reviews online and see if the National Association of Insurance Commissioners has a record of customer complaints about the carrier. Evaluate the company’s financial stability by checking ratings from A.M. Best, Moody’s, and S&P.

7. Not Informing Your Insurer of Major Renovations

Remodeling your home can affect the cost of rebuilding or pose new risks, requiring more coverage. Don’t keep your insurance company in the dark about major updates, or you might find you’re underinsured in the event of a loss. Changes such as adding square footage, installing a pool, building a detached structure, or upgrading your home’s materials typically raise your insurance rates. Renovations such as upgraded heating or plumbing systems, earthquake retrofitting, or a fire-resistant roof could mean lower premiums.

8. Filing Too Many Insurance Claims

Filing an insurance claim can boost your homeowners insurance premiums. Insurers review the Comprehensive Loss Underwriting Exchange (CLUE), a database of home and auto insurance claims, when setting insurance rates. Any claims filed on your home within the past seven years—even if filed by a prior homeowner or with a different insurance company—can mean higher premiums. Depending on your deductible and the cost of the damage, the payout from a claim may not be worth risking higher insurance rates. In general, you should only file a homeowners insurance claim after a major loss.

9. Dropping Coverage Once Your Home Is Paid Off

Mortgage lenders typically require borrowers to carry homeowners insurance to protect the lender’s investment. Once your mortgage is paid off, you could drop your home insurance—but should you? Unless you could easily afford to rebuild your home after a disaster, going without homeowners insurance could cost you much more than it saves.

The Bottom Line

Avoiding common home insurance mistakes can reduce the cost of insurance while still protecting your home. Having good credit can also help you pay less for homeowners insurance. Insurance companies in many states may review your credit-based insurance score when considering your application. Although this differs from your regular credit score, it’s calculated using many of the same factors. Checking your credit score before you start shopping for home insurance can give you an idea of your credit-based insurance score. Maintaining low credit utilization and paying bills on time can help improve your credit scores, which could mean paying less for homeowners insurance.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We are here to help you with all your mortgage needs!

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