Getting a homeowners insurance policy is one of the best actions you can take to protect your financial future, but only if you nail the details. You might be tempted to rush through the process, but that can cost you thousands of dollars if you need to file a claim.
Below, CNBC Select dives into three costly mistakes you should avoid making when it comes to your homeowners insurance policy.
What we'll cover
Underinsuring your property
If your home is underinsured, it means the amount of money the policy covers is less than the expense of a potential claim. For example, say a thunderstorm causes $200,000 worth of damage to your roof. But when you file your claim, you discover your policy only provides $100,000 of coverage. In this case, you're underinsured by $100,000 and would have to pay that amount out of pocket.
There are a few reasons why you may be underinsuring your property. For one, your policy may not be enough to cover the cost of rebuilding your home in the event of a major disaster. This is simply because construction costs could wind up being higher than anticipated so the cost of rebuilding is higher than what your home is currently worth.
Another reason could be that you have an actual cash value (ACV) policy. This means that if you file a claim for a damaged possession (say a refrigerator or a furnace), you'll receive a reimbursement based on its value today even though it depreciated over time and was once worth much more.
Having a replacement cost value policy can remedy this. Chubb Homeowners Insurance offers this option so you can make sure your possessions are covered for the amount it would cost to replace them at current prices, up to your policy limit. As you might expect, replacement cost value policies tend to cost you more money than actual cash value policies, but the added expense could be worth it if you have older appliances or features on your house (such as a slate roof) that an ACV policy would struggle to cover.
Chubb Homeowners Insurance
Cost
The best way to estimate your costs is to request a quote
Maximum coverage
Not disclosed
App available
Yes
Policy highlights
Policy covers home and property damages caused by wildfires, extreme weather, crime, vandalism and personal liability, which also covers claims for libel and slander. Also includes replacement cost for contents, extended replacement cost for dwelling and a cash settlement option
Does not cover
Flood or equipment breakdown (these can be purchased as add-ons to your policy)
Terms apply.
Neglecting the appropriate add-ons
Standard homeowners insurance policies don't typically include coverage for high-value items (jewelry, fine art, etc.), or for damage caused by certain natural disasters like earthquakes. But for an extra fee, you can expand what your policy covers with specific add-ons.
You'll want to carefully toe the line between making sure you have enough coverage and buying unnecessary add-ons you won't likely need. If you live in South Carolina, for example, you probably can skip the earthquake coverage. But coverage for sewer backup might make sense.
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Not bundling your policies
The good news when it comes to insurance is that you can typically bundle multiple policies under the same insurance company to receive a pricing or rate discount. For instance, customers who bundle policies with Farmers Insurance save an average of 20% with its bundling discount, according to the company. You can bundle your homeowners insurance with any other type of policy, including auto insurance.
Farmers Homeowners Insurance
Cost
The best way to estimate your costs is to submit your information for a quote
Maximum coverage
Not disclosed
App available
Yes
Policy highlights
Policy covers your home and property damages, personal liability and loss of use
Does not cover
Damage resulting from earth movement, water, nuclear hazard, failure to make repairs, war and fungi — see here for the complete list; contact a Farmers Insurance agent for a list of any exclusions specific to your state
Terms apply.
Lemonade is another solid insurer that offers a bundling discount, on top of its already fairly low premium starting at $25/month.
Lemonade Homeowners Insurance
Cost
Starts at $25/month; can vary by state, age of the home and other factors
Maximum coverage
Not disclosed
App available
Yes
Policy highlights
Policy covers your home and property for damages caused by wildfires, extreme weather, crime, and vandalism. It also covers liability claims for damage you accidentally cause to others
Does not cover
Power, water, or heat going out, or bug infestation; some events may not be eligible for coverage, depending on the circumstances — see here for more information
Terms apply.
While some bundling discounts may seem small, every dollar you save can go a long way, especially homeownership can sometimes feel like a money pit with some new expense always cropping up. Just make certain that bundling your insurance actually saves you money and makes sense for your situation.
Bottom line
Homeowners insurance is yet another expense that comes with buying a home, but it's well worth the cost. One of the most expensive mistakes you can make is underinsuring your home. So make sure you appropriately analyze and consider your needs before signing on the dotted line.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of homeowners insurance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best homeowners insurance.
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