4 “Surprises” of your Homeowner’s Insurance

4 “Surprises” of your Homeowner’s Insurance
Chances are you when you purchased your home you never took the time to look at what your homeowner’s insurance covers. In fact, most people don’t pay attention to those thick packets they get from their insurance company when their policies begin or renew. Most people know what is covered until they have a loss. Today we are going to discuss 5 common coverage’s homeowner’s think are included on their standard homeowner’s policy but may not be….automatically that is.

1.       Flood
A study done by the National Association of Insurance Commissioners states that 33% of homeowner’s believe Flood is covered under their policy. Flood insurance is available for purchase as a separate policy through the National Flood Insurance Program (NFIP). If you have a mortgage on your home and are in a designated “HIGH RISK” flood zone (the zone defines your varying flood risk based on your property’s vicinity to water) your mortgage company will require you to have insurance. Your rate is determined by your zone risk factor. Homeowner’s not located in a “HIGH RISK” flood zone may be able to purchase a flood policy for as little as $200-$300/yr. 

2.       Termites
Termites are considered preventable according to insurance. Insurance covers the sudden and accidental. That being said, Termites have some company, or lack thereof. Damage by rats, bats, birds and other vermin are usually not covered under your homeowner’s policy either. Do your job as a homeowner and get regular pest prevention methods in and around your home to prevent a loss like this from occurring. There is no endorsement currently offered to cover these losses.

3.       Renovations

It’s coming up on the tail end of the winter season and spring fever is about to set in. With the flowers and sunshine coming through many homeowners make renovations to their home. Let’s say you add a deck to the back of your house so you can have cookouts with friends. Or add a nice in ground pool in the backyard. What if you add an extra room on due to an unexpected soon-to-be arrival? With all the excitement, you probably haven’t thought to contact your homeowner’s insurance agent. Renovations are not automatically covered under your policy. Other structures coverage is 10% of your Dwelling coverage (that’s $10,000 for a $100,000 home) but can be increased if necessary due to adding that sweet in ground pool in your backyard. Make sure if you add on any additional heated or attached square footage you get a new cost estimator completed so your dwelling coverage matches your dwelling. Your insurance agent can help you with this process.

4.       Actual Cash Value vs. replacement cost value

Although most standard home policies do offer replacement cost for your property and contents coverage, it’s important to know the difference between replacement and actual cash value.

Actual Cash Value is equal to the replacement cost minus any depreciation (ACV=RC-depreciation). It represents the amount you would expect to receive if you sold your item in the marketplace.

Ex: You have a home that was built in 1999. You have ACV coverage on the home. The home is valued at $100,000. In 2012, the house burns to the ground. Your insurance company is going to take your replacement cost ($100,000) and take away for depreciation based on the age and condition of the home so let’s say based on that information the ACV is $80,000. That is what they are going to pay for you to rebuild your home. So where does that other $20,000 come from? That’s right. Your pocket.

That’s where replacement coverage comes into the picture. Replacement cost does just what it says. It replaces. So in the same scenario above your homeowner’s insurance will pay you $100,000 to replace your home.

So although an ACV policy may have a lower premium, in the long run having the better coverage may save you from paying out of pocket in the future.

-Caroline Miranda