Insurance can be very confusing. We’re here to help make it easy to understand, starting with three myths about home insurance and how you can really protect your home.
We’re finding many homeowners are underinsured and would face a devastating financial blow if, for instance, their homes burned down. So, how do you know if you’re properly insured? Let’s start by examining some common misconceptions.
Understanding These Three Home Insurance Myths Could Save You Money
Myth #1 – Real Estate Value is the same as Insurance Value (aka Replacement Cost)
In many cases, the real estate value (market value) of your home may be comparable to the insurance replacement cost, but that isn’t always the case. Real estate value includes the home and the land value, whereas the insurance replacement value is generated by the total cost of removing rubble and rebuilding the property based on its current features, labor costs, materials, and supplies.
So, if we look at an example of a beachfront property in San Diego, California we can see what a difference being insured for the correct replacement cost would make. While the real estate value may be $5 million, the insurance replacement cost may only be $2 million. If we used that exact property but, for instance, if it were located inland in a less desirable area, the insurance replacement cost may be very similar to the market value or even more.
Solution – To determine the appropriate insurance value, you’ll want to go through a detailed replacement cost estimator with your home insurance agent. We at CAInsuranceNow help clients generate an estimate for their replacement cost for their property, free of charge. We then give you expert advice on how to obtain the appropriate amount of coverage at a competitive premium.
Myth #2 – Home insurance covers all types of water damage to my home
This is an important myth to tackle because many homeowners are disappointed to learn their home insurance doesn’t protect them from certain natural disasters.
Most standard home insurance policies in California cover perils such as fire, wind, hail, and water damage. However, water damage caused by a flood is normally not covered. Flood and water damage may sound similar, but when it comes to home insurance, they are quite different.
Water damage occurs, for example, when a pipe breaks, the roof leaks, or there is an overflow of a bathtub or sink. Flood damage occurs when rising water comes into the home from tidal waves, river overflow, or excessive rain. If you have flood damage and do not have a separate flood insurance policy, you are not covered and you will bear the financial cost for damage and repairs.
Your home insurance agent should be able to help you get a flood coverage policy. Flood insurance premiums are generated primarily based on flood zones determined based on the floodplains, floodways, lowlands, and areas susceptible to flooding. Therefore, based on the flood coverage you elect and the flood zone your property is located in, premiums can vary significantly.
We at CAInsuranceNow have access to the National Insurance Flood Program through FEMA and several private markets; contact us for a flood insurance quote.
Myth #3 – My jewelry is covered
When reviewing home insurance options with new clients, it’s quite common to hear that they assumed their jewelry was fully covered under their home insurance policy’s personal property limit (coverage C). However, almost all standard home insurance policy forms have special coverage limits for jewelry theft, damage, or loss. We’ve reviewed hundreds of home insurance policies and have found $1,500 to be a standard special limit of coverage (per item) for theft of jewelry. Therefore, in many events where, for example, only one item is stolen, the insured may not find coverage (or a reasonable amount to justify making a claim) on their policy.
Solution – Add a jewelry rider or endorsement to your policy with a special deductible. This is often referred to in the home insurance industry as scheduling personal property. You can usually select a deductible as low as zero dollars and insure your valuable items at their appraised value, not just their purchase price. A licensed jewelry appraiser generates the appraised value and insurance companies usually request an updated appraisal no more than two years old. It typically costs about $100 per item to be appraised. However, many of our clients go back to the jewelry store where they had purchased the jewelry item to get an updated appraisal at a discounted rate or sometimes for free.
The additional premium for scheduling jewelry to your home insurance policy can vary. However, a good rule of thumb is to expect around $10 of additional annual premium for every $1000 of jewelry you want to be insured. If you need help scheduling your jewelry, we at CAInsuranceNow can help you with a quote.
Home insurance doesn’t have to be confusing, we can help!
Understanding these three myths about home insurance can save you thousands of dollars should you need to file a homeowner’s insurance claim. Another often misunderstood type of insurance is life insurance. Read about why everyone should have life insurance.