Insurance is designed to help us protect our assets. One of the biggest assets you are likely to ever have is your home. Buying homeowners insurance is a must. What happens if your home is damaged? Chances are that you couldn’t pay for repairs out of your pocket. Insurance covers those costs, as long as you have paid your premiums.
Unfortunately, too many homeowners assume they are covered, when they really aren’t. Homeowners policies often have holes in them. Read your entire policy, and ask your agent for clarification, if you aren’t sure that you are covered. In fact, realize that the following 5 items might not be covered in your basic homeowners insurance policy, and you might need to purchase additional coverage:
Some damage to your home is covered. Lightning strikes, fires, and burst pipes are all usually included in your homeowners policy coverage. However, there are some natural disasters often left off the list:
- Landslides and mudslides
If your home is located in an area that is prone to some of the above natural disasters, you might not be covered. For instance, a few years ago, the water table flooded and our crawl space was inundated. Our homeowners policy didn’t cover flooding, so we had to pay for it out of our pocket. We were fortunate that the damage was limited, since the crawl space was made of concrete. Our family room carpet was soaked, but only the pad needed to be replaced.
Others aren’t so lucky. If you are concerned about a natural disaster, look into additional coverage.
Business Use of Your Home
Just because you have a home office, it doesn’t mean it’s covered. If something happens to an area of your home used primarily for business use, you might not be compensated, or your compensation might be capped at between $1,000 and $5,000. If you use your home for business activities, ask your agent if it makes sense to purchase additional coverage.
Your homeowners insurance policy comes with coverage on the contents of your home. However, there is usually a limit to the coverage. If you have very valuable items, the amount of contents coverage that comes with your homeowners policy might be inadequate. Your TVs, computers, and furniture might be covered, but is the amount of your coverage enough to cover the large and flawless sapphire in your late grandmother’s engagement ring? Will it offset the loss of an expensive piece of artwork you bought five years ago? Insure valuable items separately if your homeowners policy isn’t large enough.
Just as your homeowners policy comes with coverage for contents, it also comes with liability coverage. If someone is injured on your property, the insurance will cover their costs. However, this might not be the case if the lawsuit is higher. If you are sued for more than $1 million, the basic coverage in your homeowners policy might not be enough.
Check your policy to see the limits on your liability coverage. If you are worried that you could be sued for more (high net worth individuals are often the targets of these high-end lawsuits), you might consider buying additional liability coverage, such as what you can get with an umbrella policy. Also consider additional coverage if you have a tempting hazard, such as a pool or a trampoline, or a pet, like a dog, that might harm others.
This hole in your homeowners policy is manifest if you have been in your home for a long time. Perhaps the real estate market in your location has picked up, but your coverage is still on par with what your home was worth 15 or 20 years ago. Check the terms of your policy to see if it allows for an increase in value. If it doesn’t, you may need to revamp your coverage to ensure that it is consistent with the current value of your home.
It’s a good idea to review your homeowners insurance coverage at least once a year to determine whether it still meets your needs, and decide if you need to purchase additional coverage.