5 Home Insurance Myths: Understanding Your Coverage
Homeownerâ€™s insurance is an excellent way to protect the most important and expensive asset that most people ever buy. However, there are many home insurance myths and misconceptions about the coverage afforded by policies.Â The following list includes several of the most common examples of misinformation regarding homeownerâ€™s insurance.
Myth #1: Homeownerâ€™s Insurance Covers Any Kind Of Damage
While homeownersâ€™ policies do cover many kinds of damage to a home, such as storms, fires and theft, many homeowners find out too late that most insurance policies do not cover damage caused by such common events as flooding, earthquakes, termites or mold.
In order to protect against earthquake damage in areas prone to seismic activity, a separate policy must be purchased from a private company or governmental agency offering earthquake coverage. Flood insurance is available through the Federal Emergency Management Agencyâ€™s National Flood Insurance Program. Coverage under this program is extended to people who live or own property in or near floodplains. Termite and mold damage are almost never covered by insurance plans and are best addressed by pest control treatments, good housekeeping and regular household maintenance.
Myth #2: A Renterâ€™s Property is Covered Under Homeownerâ€™s Insurance
Another common misconception on the list of home insurance myths is that the property of a person renting a home or apartment is automatically covered by the insurance policy of the owner of the home. However, a homeownerâ€™s policy generally only covers the home itself and the belongings of the individual or family who purchased the policy. In order to be protected, a renter must purchase a separate renter’s insurance policy.
The New York Times recently highlighted this misconception among renters in a 2012 report, in which New York State Department of Financial Services associate insurance examiner, John Capuano, warned that â€œas a renter, if your personal property is damaged, youâ€™d have to have a renterâ€™s policy to get coverage. The landlordâ€™s policy is not going to cover your damages.â€
Most home insurance companies offer renterâ€™s insurance policies. These policies are available at a fraction of the cost of homeownerâ€™s insurance and protect a renterâ€™s personal property against loss by theft, fire or natural disaster.
Myth #3: A Homeownerâ€™s Policy Will Pay to Replace Any Damaged, Lost or Destroyed Property
Many people mistakenly believe that if their personal property is stolen or destroyed, their insurance company will pay to completely replace it. However, most insurance companies base payouts on the fair market value of the item. This means if a 10-year-old television originally valued at $1,000 is destroyed, the insurance company will only pay the depreciated value of a decade-old television, not the amount originally paid or the ticket price of a new television. Some insurance companies do still cover full replacement value, but these are few and far between.
A common misconception also exists that all property is subject to reimbursement. Certain property types, however, such as jewelry, antiques, and art are usually capped at a specific amount. For instance, if a policy has a $2,000 cap on your platinum engagement rings, an insurance company will not pay out $15,000 for lost or stolen jewelry, even if the policyholder can produce documentation of the fair market value of the property. Insurance companies sell riders for additional coverage amounts for these â€œspecialtyâ€ property categories, but a homeowner must specifically request such coverage, provide an inventory, and pay an additional premium.
Myth #4: Homeowner Liability Coverage Pays Medical Costs for Anyone
Some homeowners assume that the medical liability coverage included as a part of many home insurance coverage policies will pay for injuries to anyone who gets hurt in the home or on land attached to the home, including members of their own household. However, the purpose of liability insurance is to protect a homeowner from being sued by a visitor to the property who is injured, not to provide a blanket medical insurance policy to the homeowner and the homeownerâ€™s family. Liability medical coverage is generally only extended to persons who are not residents of the home.
Myth #5: An Insurance Company Always Acts in the Clientâ€™s Best Interests
Many people believe that their insurance company is their paid advocate. However, insurance companies are in business to make money, not to provide charity or perform additional services above and beyond those outlined in their customers’ policies.
Insurance companies specialize in structuring policies so that they pay out as little as possible. This does not necessarily mean that an insurance company is evil; it just means that an insurance company may not always be a clientâ€™s best friend, especially in cases of catastrophic loss when a large amount of money is involved. As such, be sure you carefully track your policy and remain informed and up-to-date with your home insurance coverage.
An insurance policy is no different from any other service contract. Policies vary between companies, and it is up to each policyholder to completely understand the contents of an insurance policy before signing. Taking the time to do so by learning common home insurance myths can prevent an expensive misunderstanding or even complete financial devastation for a homeowner in the event of damage or loss of a home or property.
Chad Fisher is a financial blogger who has written about a variety of home insurance topics.