Lesson Learned: The Most Common Misconceptions about Homeowners Insurance

Have you ever encountered a bewildered and bemused insured who was fraught with incorrect information about his or her homeowners insurance? At some point, every adjuster has been there – needing to correct the insured’s misconceptions — hopefully lessening his or her predicament. If you had to name 5 common misconceptions homeowners have about their insurance policies, what would they be? Did they make our list?1) Loss-of-use coverage is what the majority of homeowners think they have in case of a situation where a home becomes temporarily uninhabitable. In this type of occurrence, most people assume that their insurance companies put them up in hotels and possibly give them a per diem for meals for their families. This loss-of-use coverage does exist and it does provide for temporary housing and–sometimes–food. But it’s not coverage that’s automatically included in the average homeowners insurance coverage. Making sure that your insureds know whether or not they have loss-of-use in an emergency situation will save time and confusion (and possible money) when deciding what initial actions the family should take regarding shelter.

2) Replacement cost occurs when an item within the home is counted as a loss. If an insured has replacement cost coverage, their lost item will be valued at its original worth and the payout for it will correspond with that valuation. However, it is usually included in homeowners policies as a clause and is not automatically awarded. Forbes magazine online uses an example of a home computer: “If your four-year-old computer is lost in a fire, replacement cost coverage would allow you to purchase a new one with similar features,” reported Forbes. “If [replacement cost coverage is] not included, losses will be valued at what they were worth in their condition before the calamity. The four-year-old computer might be valued at $250 – not enough to purchase a new one.”

3) Flood coverage is one of the most highly utilized types of insurance because flooding and water damage is a common issue for both the home and the damage to (or loss of) items within the home. Unfortunately, most homeowners policies don’t include any type of flood coverage at all. It is usually marketed as a separate flood policy, just like most natural disasters–although flood coverage is not only meant for literal monsoon-caused floods (think burst pipes and broken washing machines). It’s important to make insureds aware of the fact that flood insurance is sold solo and not as part of the average agency’s homeowners policy.

4) Termites are commonly considered one of the worst pest problems a home can have and they are an issue that is present all over the United States. Despite this, there is no widely covered policy for termite damage or the damage of other similar pests. In fact, although damage from these insects can destroy the structure of a house and costs thousands of dollars to repair, the best way to insure that this doesn’t happen to a home is to have it regularly checked by pest control professionals. Insureds must realize that termite and pest damage is one disaster that is almost never covered by insurance.

5) Valuation of loss is determined by adjusters who venture to affected homes, evaluate what’s damaged or lost, and then submit content items for valuation based on their inventoried descriptions. What homeowners might not realize is that this monetary valuation is not necessarily written in stone – if they know to keep receipts and photos of their purchased belongings, they may be able to rightfully negotiate their valuation to the most accurate number thanks to their support documents.

By understanding the common mistakes or assumptions homeowners often make regarding their insurance plan, you can have a leg up when trying to straighten out any confusion that has your homeowners stumbling around their policy.

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