Truth about Home Owners Insurance

Personal finance expert Liz Pulliam Weston believes that most people look at insurance in the wrong way.  “They operate based on certain myths about insurance,” she says, “and those myths can cost them – big time.”  Every homeowner needs to be able to wade through the myths and confusion in order to get a policy that covers them properly. Here are ten common home insurance myths, and the truth behind them. 

Myth #1:  A minimum policy is enough. 

Many people assume they can save money by buying less insurance, but they could be setting themselves up for disaster.  If your home gets destroyed, a policy that doesn’t cover all of your losses will leave you short.  Evaluate your needs in a realistic way to make sure that you have enough insurance to help you recover from an accident to your home.  

Myth #2:  All home insurance policies are the same.

This is not one-size-fits-all shopping.  Every person needs a policy customized to fit their own home and their own needs. 

Myth #3:  Make claims on your insurance so that your premiums won’t be wasted.

Insurance is not squandered money to use by fixing the little things around the house.  Think of home insurance as a safety net, there in case you need it. 

Myth #4:  Never make a claim to keep your premiums from increasing.

While you should skip claims for damage around the amount of your deductible, you shouldn’t refrain from making a claim for serious damage to your home.  With so many factors weighing in on insurance premiums, one claim filed over several years might not increase your payments.

Myth #5:  Every home in a flood zone is automatically covered for flood damage.

Flood insurance is usually a separate option that must be added.  Every homeowner should consult with up-to-date flood maps to see if their home is at risk.  Consider adding flood insurance if you are close to a flood zone.

 Myth #6:  If you live in an area prone to earthquakes, then you are covered for earthquake damage.

Similar to flood insurance, many people assume that earthquake insurance is automatically on their policy. Always make sure you understand what is and isn’t included on your policy.

Myth #7:  Every home has the same insurance premium.

There are many factors that affect your premium. Location, deductible, home type and your personal selections all affect the cost of your premium.

Myth #8:  My insurance company will replace anything I lose.

Your insurance company will ask for proof of purchase before covering anything that is damaged or lost. Put together a home inventory list with photos and receipts, and store it a safe place. 

Myth #9:  Damaged items are replaced at the cost I bought them for.

Insurance companies typically cover items at their current value.  They reach this cost by considering the original price and subtracting the items age and use.  This affects personal items as well as the home itself.  A policy that pays for replacement value allows homeowners to replace damaged items with new ones.

Myth #10:  If a large disaster affects the entire area, then the government will help, so I don’t need any extra coverage.

Looking at past examples, like the 2005 hurricane season, is a reminder that the government is not able to completely rebuild towns and homes.  It is the homeowner’s responsibility to make sure that they are adequately covered.