Safeguarding Your Home: A Guide to Understanding Homeowners Insurance
It’s a common feeling: with all the resources we pour into our homes, it’s almost impossible to imagine a disaster taking it all away. Yet, as we see more and more around the world, unforeseen events are becoming more frequent and severe. The last decade saw more billion-dollar weather disasters than any prior, making effective home protection more crucial than ever.
While homeowners insurance might seem like a safety net, hidden risks often lurk within policies, leaving us vulnerable to events such as floods, wind damage, water backup issues, or even cyber scams. Also, the cost of providing this type of cover has increased dramatically across different regions of the country. So, how can we be sure our homes are adequately protected?
This guide dives into the vital elements of homeowners insurance policies, with expert advice from Aryn Bates, CAPI, CPRIA, VP and Senior Business Development Executive for Marsh McLennan Agency in Cincinnati, Ohio. With over a decade of experience in protecting affluent families from property and casualty risks, Aryn provides actionable steps to ensure your home is as secure as possible.
Review the Basics of Your Homeowners Policy
Taking a moment to verify your policy’s key information is a good starting point.
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Is Your Name and Address Accurate? Confirming that your name and address are correct might seem obvious, but agents frequently find errors that cause significant issues when filing a claim. If your home is owned by a trust or LLC, ensure the entity is correctly listed on the policy.
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Is Your Deductible Too Low? Evaluate your deductible amount. Submitting frequent, small claims can be costly. A higher deductible can lower your premiums, especially if you or your property have a history of claims. Note that claims can affect both the insured and the property for up to six years and can negatively impact your rates.
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Is Your Insurance Company Stable? Some insurance companies struggle to pay out claims after large-scale disasters due to financial instability. Choose insurers rated A or better to ensure reliability.
Check for Missing or Insufficient Coverage
No one wants to discover they’re underinsured during a crisis. Reviewing your policy now can prevent common coverage gaps.
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Does Your Policy Cover Replacement Value? This figure should reflect the cost to rebuild your home, not just its market value. Aryn Bates explains, “This replacement calculation is not the same as the Zestimate, or the market value of your home, and is typically higher than what you paid for the property.” Standard policies may cap replacement costs or inadequately insure the home, making it difficult to rebuild using only insurance proceeds. Keep your coverage up-to-date to reflect any home improvements or renovations.
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Do You Have Water Backup Coverage? Many homeowners are surprised to learn that water backup coverage is not standard and is typically an endorsement—an optional addition. Bates highlights the potential damage: “Imagine the damage a few inches of water from a backed-up floor drain or an overflowing second-floor toilet could cause. Without this endorsement, you’ll be paying out of pocket for the cleanup and repairs to mechanical systems, flooring, and belongings.” The cost of adding water backup coverage is far less than the expense of water damage repairs.
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Are You Protected If You Have to Leave Your Home? If a covered disaster forces you out of your home, Loss of Use Coverage covers living expenses while repairs are made. Many policies have low limits, making finding suitable accommodations difficult, especially if you need to stay in a specific school district. Claims can take up to 18 months to resolve, so ensure your policy offers sufficient Loss of Use coverage.
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Are You Covered for Cyber Threats? Cyber protection in your homeowner’s policy helps with computer attacks, cyber extortion, online fraud, data breaches, and cyberbullying. Cyber insurance endorsements can cover equipment repair or replacement costs, tracing events, and legal responses. According to Bates, this coverage is affordable and is particularly important for family members, such as teenagers or elderly individuals, who may be vulnerable to cyber scams.
Prepare for Severe Weather in All Its Forms
Hurricanes, fires, and floods are real, and understanding the type of claim and its nuances can help you confirm your coverage.
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What is a Wind Claim vs. A Flood Claim? Confusion often arises around hurricanes and how they effect damage. If wind-driven rain enters your home, that’s wind-driven rain damage. If wind damages your roof, and water enters, it’s water damage resulting from wind. Flooding occurs when water inundates multiple properties from such natural sources as rivers or heavy rainfall.
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Are You Protected from Damage by Hurricanes? The primary protection against hurricanes is wind insurance, which covers roof, window, and structural repairs. While wind coverage is often part of a standard homeowner policy, in wind-prone areas, it can be expensive and come with a higher deductible or may be excluded altogether, leaving homeowners to bear the full cost of wind damage. Bates suggests investing in wind mitigation reports and considering upgrades to windows, doors, and storm shutters to improve insurability, especially for older properties.
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Are You Protected from Damage by Floods? Flood coverage is not included in a typical homeowner policy and must be purchased separately. While essential for homeowners in flood-prone areas, flooding is a risk for any property owner. Homeowners can purchase flood insurance, and rates vary based on location in a flood zone. Standard flood insurance policies offer up to $250,000 in building coverage and $100,000 in contents coverage (excluding basements). Excess flood insurance is available for additional protection.
Final Thoughts
Regularly reviewing your homeowner’s insurance policy is about more than saving money—it’s about making sure you have the right protection when you need it most. Take the time to verify details, adjust coverage as necessary, and partner with a knowledgeable agent to navigate the complexities of home insurance. It’s a small effort that can prevent significant financial and emotional distress down the road.
