It’s exciting to move into a new home, but don’t forget that house-hunting isn’t all fun and games. You also have to brace yourself for all the responsibilities that come with buying a home, such as getting an adequate home insurance policy for your new house.
As a helpful reminder, here are some costly home insurance mistakes to avoid, especially if you’re a new homeowner.
1. Setting an unrealistic budget
It’s easy to get caught up in all the superb listings when you’re busy house-hunting, but don’t forget to do a reality check every now and then. Always make sure that you’re living within your means. Setting an unrealistic budget, be it for buying a preowned property or building a new house, will only put you in a world of headaches later down the road. Even if you’ll be putting most of the amount of the mortgage, you also have to think about all the costs that come with a more expensive house. This includes monthly expenses like electricity, taxes, and of course, insurance.
2. Not doing enough research
Before picking out the location of your new abode, it’s important to do your due diligence in researching about the area first. What are the common hazards or risks in the area? Does it often get flooded? Is it prone to earthquakes? Are there any other weather-related hazards that you should be wary about? You should know the answers to all of these questions before even thinking of moving into your prospective home, as these will tell you everything that you will need to include in your insurance coverage. That is, if you’re still willing to live in an area that’s prone to various hazards.
3. Picking the cheapest contractor
Perhaps you already have the designs to your dream home and would like something that’s exactly to your liking. If so, hiring a construction company to build you your own home would be the best course of action. That’s completely fine, of course, but don’t make the mistake of picking the cheapest contractor to do the job for you. Always remember that there’s a reason why this certain contractor is the cheapest of them all. The workers may not be as skilled or the materials used are not as high-quality. They make not have availed liability insurance for contractors. Whatever the reason is, you’re not doing yourself a favor by cutting down costs right from the start.
Not to mention, once your insurance provider sees who the contractor is, especially if it’s a well-known cheap company, you can be quite certain that you’ll get hit with expensive premiums. After all, your insurance provider will be liable to cover any future damages – regardless if the reason is that your house was made using cheap materials and equally cheap labor.
4. Renovating too much
Your insurance premiums depend on several factors, including the location of your home and its perceived value. Unbeknownst to most, it also depends on something else: design.
Don’t worry, changing your wall paint from white to purple won’t suddenly double your insurance premium. Replacing the furniture in the living room also won’t affect your premiums, but changing the actual structure of the home would. Interestingly, this is mainly due to two opposite reasons. One, the renovation turned out to be good and increased your property’s value. If that’s the case, it would cost more to insure since replacing or repairing the property in the future would be more costly too. If the renovation was bad, however, it would still cost more to insure, since the chance of something bad happening would become a bit higher as well.
5. Under-insuring your home
Underestimating the value of your home is one of the worst mistakes that you could commit when insuring your home. If anything happens to your home your insurance will only cover the value that you covered it for, so under-insuring your home is a dangerous gamble to make.
To avoid making this kind of mistake, it’s always much better to work with licensed professionals who know exactly how to determine the value of your home. Some of the factors that could affect this number include the building’s foundational structure, the layout of the house, and even its distance to your nearest neighbor.
6. Skipping the fine print
Your insurance agent is required to explain everything that your insurance policy covers and of course, you’re also allowed to ask as many questions as you need to fully understand your policy.
However, even if you think that you no longer need to read the documents given to you for signing, it’s still much better to read every single page before affixing your signature. Skipping the fine print is one of the biggest mistakes that people make, regardless of what kind of contract they are signing. It’s one of the ways that companies can trap consumers: by getting them to sign contracts that they don’t fully understand simply because the consumer themselves skipped over the details.
7. Relying on assumptions
Another item on this list of costly home insurance mistakes to avoid is relying on assumptions. Don’t ever assume things regarding your insurance policy.
Many homeowners think that their basic insurance covers common issues, only to find out later on that they were uninsured for that specific situation the entire time. Some examples are natural calamities like floods, landslides, wildfires, and earthquakes, which typically need a separate insurance policy. If there’s anything you’re not sure about, don’t be scared to ask. Your agent is there for a reason, after all.
8. Opting out of certain coverages
When it comes to insurance, it’s always much better to over-insure than under-insure. You may think that you don’t need to insure yourself against earthquakes since your location hasn’t felt a quake in 10 years, but if you’re planning to stay in your home for longer than that, it’s better to get insured, just in case.
Again, this is why it’s important to do your due diligence when moving into a new home as you may opt out of certain coverages not knowing that your new home actually needs them.
June 24, 2019