Top 5 Home Insurance Myths

Myth #1: The replacement cost of my home should be about the same as the market value.

The Truth: A common mistake of homeowners when they are getting quotes for home insurance is to use the market value of their home to determine the dwelling coverage. Dwelling coverage should only be based on replacement cost–the cost to rebuild the same home from the foundation up.

Using market value as a reference point will lead some homeowners to under insure–those who live in areas where the market value of homes is depressed. And, it will lead others to over insure their homes–those who live in regions with high market values. For example, if you live in Syracuse, NY and own a 4,000 square foot home the market value may be between $100,000 and $250,000. But you would be hard pressed to find a contractor willing to construct a home this large for less than $400,000 (estimate based on $100/sq ft). On the other hand, if you live downstate in Westchester, NY a 3,000 square foot home may be worth $1 million on the open market.  But a contractor may only charge around $600,000 to rebuild the home (estimate based on $200/sq ft).

Solution: Have your insurance agent perform a replacement cost estimate using their standardized estimation software.  But beware, some agents will inflate this figure causing your premium to rise. Read our article about replacement cost to learn more about this.

Myth # 2: My jewelry and valuables are covered under a basic homeowners policy.

The Truth: Most policies have specified limits of coverage for valuables including jewelry, precious metals, furs, and even china. Depending on your policy this limit could be anywhere from $1,000 to $3,000.  If you lose your engagement ring valued at $10,000 the insurance company won't pay beyond the limit specified in your homeowners policy. Remember, your policy is a contract. Make sure you review the limits of coverage that may impact you the most.

Solution: Riders, or scheduled personal property addendums are available to meet the needs of homeowners who want to cover items with values exceeding the specified limits. These coverages can be tailor made to meet the needs of the homeowner. In order to cover items for the correct amount many insurance companies require you to get an appraisal of the item you want to insure.

Myth # 3: My homeowners policy will cover me in the event of a flood.

The Truth: Many people assume that a homeowners policy will cover water damage or floods. This is not the case. Standard home policies will not cover flood damage.

The Solution: Flood insurance can be obtained, if necessary, through federal FEMA programs. Make sure you check flood and elevation maps available online or through your local town hall. If your in a flood zone contact your insurance agent immediately.  *If your home is mortgaged and you live in a flood zone, the lender will require you to have additional flood insurance. Keep this in mind if your shopping for a new home, as flood insurance can be fairly expensive.

Myth # 4: The medical payments portion of my policy will cover me and my family.

The Truth: Medical payments is a basic feature in many homeowners policies. However, it is only there to protect you in the event that someone not in your family is injured on your property. In most cases utilization of this coverage will avoid a law suit. For example, if you have a pizza delivered to your home and the delivery person falls on your front walk and needs an ambulance, this coverage would pay up to the limit ($5,000 is recommended) of medical payments coverage for related expenses.

Myth # 5: If my furnace, washing machine, or other equipment fails my policy will cover it.

The Truth: Your policy will not cover damaged or defected items due to lack of maintenance such as a furnace or washing machine. This could also include the 30 year old roof that you've thought about replacing. Another issue that would not be covered is if you let a leaky pipe go unfixed for an extended period of time. This could cause damage such as mold or rotting, and it is not covered by your homeowners policy. It is the homeowners responsibility to keep your dwelling well maintained not the insurance company's.

Solution: Perform any necessary repairs at the time they are needed. Keep appliance and mechanical equipment well maintained. Make sure your home is well kept and safe.