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Debunking Common Homeowners Insurance Myths

Homeowners insurance is a crucial safety net for protecting your most significant investment. However, falling for common myths about home insurance can be costly. Separating myth from reality can save you money, ensure adequate coverage, and provide peace of mind. Here are ten homeowners insurance myths and the truths behind them.

1. Home Insurance Covers All Natural Disasters

Standard homeowners insurance covers damage from natural disasters like fire, wind, hail, lightning, and some water damage. It also covers vandalism, theft, liability for injuries on your property, and living expenses during repairs. However, it generally doesn’t cover floods, earthquakes, landslides, and sinkholes. If you live in an area prone to these risks, consider purchasing additional policies.

2. Older Homes Are Cheaper to Insure

Unlike older cars, older homes usually cost more to insure due to aging materials and outdated building codes. Homes over 50 years old are more prone to damage, and repairs can be more expensive. Bringing an old home up to current codes and recreating its original look can add to the cost.

3. You Don’t Need Homeowners Insurance Unless You Have a Mortgage

While mortgage lenders typically require home insurance, it’s not legally required once you’ve paid off your mortgage. However, going without it poses a significant financial risk. Could you afford to rebuild your home after a disaster or cover a lawsuit if someone is injured on your property? Maintaining home insurance is a smart financial move.

4. Homeowners Insurance Covers Damage From Wear and Tear

Homeowners insurance doesn’t cover repairs due to routine wear and tear or lack of maintenance. For example, it won’t pay to replace a worn-out washer and dryer. Consider purchasing a home warranty to cover repairs or replacements of appliances and systems that break down.

5. Homeowners Insurance Protects Your Home-Based Business

Home insurance generally doesn’t cover losses related to a home business. Check with your insurance carrier for additional coverage options. You may need a rider, an insurance policy for home-based businesses, or a standard business owner’s policy.

6. Homeowners Insurance Premiums Are Based on Your Home’s Market Value

Your home insurance premiums are based on its replacement cost value, not market value. Replacement cost value considers factors like square footage, building materials, and labor costs. Calculate this with your insurance agent or through a home appraisal.

7. Homeowners Insurance Pays the Full Cost to Replace Your Personal Belongings

Personal possessions coverage pays to replace or repair belongings damaged or stolen in a covered incident. However, it won’t cover the full replacement cost unless you choose a policy offering replacement cost value. Policies with actual cash value coverage reimburse you for the items’ current value, which may be lower than the replacement cost. Consider buying an endorsement for high-value items like jewelry and electronics.

8. Homeowners Insurance Always Pays the Full Cost of Rebuilding Your Home

Rebuilding costs can rise due to inflation, labor shortages, and changing building codes. Your dwelling coverage may not be enough to rebuild your home. Consider purchasing extras like inflation-adjusted coverage or extended replacement coverage to cover current construction costs.

9. Homeowners Insurance Covers All Structures on Your Property

Check your policy to see if structures like sheds and detached garages are covered. Coverage is typically about 10% of your total dwelling coverage, which may not be enough for some structures. Depending on usage, you may need additional insurance like landlord or business insurance.

10. Your Credit Score Doesn’t Affect Your Home Insurance Premiums

Insurance carriers in most states use your credit-based insurance score when setting premiums. A higher score can mean lower premiums. Your credit-based insurance score is one factor among others like location, claims history, and coverage amount.

The Bottom Line

Homeowners insurance can be expensive, but going without it could be far more costly. Shop around to find the coverage you need at a price that fits your budget. Check your credit report and score before shopping, as improving your credit score can help you save on insurance.

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

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