“10 Homeowners Insurance Myths and the Realities Behind Them”

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Debunking Common Homeowners Insurance Myths

Homeowners insurance is a crucial safeguard for your most significant investment. However, falling for common myths about home insurance can be costly. Understanding the realities behind these myths can save you money, ensure adequate coverage, and provide peace of mind. Here are 10 homeowners insurance myths and the truths behind them.

1. Home Insurance Covers All Natural Disasters

Standard homeowners insurance covers damage from natural disasters like fire, wind, hail, lightning, and some types of water damage. It also covers vandalism, theft, liability for injuries on your property, and living expenses during repairs. However, it typically does not cover floods, earthquakes, landslides, or sinkholes. If you live in an area prone to these risks, consider purchasing additional policies.

2. Older Homes Are Cheaper to Insure

Unlike older cars, older homes usually cost more to insure due to aging materials and outdated building codes. Homes over 50 years old are more susceptible to damage, and repairs can be more expensive. Bringing an old home up to current codes and recreating its original look can add to the cost.

3. You Don’t Need Homeowners Insurance Unless You Have a Mortgage

While mortgage lenders typically require home insurance, it’s not legally required once your mortgage is paid off. However, going without it poses significant financial risks. Could you afford to rebuild your home after a disaster or cover a lawsuit if someone is injured on your property? Maintaining home insurance is a wise financial decision.

4. Homeowners Insurance Covers Damage From Wear and Tear

Homeowners insurance does not cover repairs due to routine wear and tear or lack of maintenance. For example, it will replace a washer and dryer destroyed by fire but not ones that have simply worn out. Consider a home warranty for coverage of appliances and systems that break down.

5. Homeowners Insurance Protects Your Home-Based Business

Home insurance generally does not cover losses related to a home business. For example, a stolen business computer or a client injury lawsuit may not be covered. Check with your insurer about additional coverage options, such as a rider, home-based business policy, or standard business owner’s policy.

6. Homeowners Insurance Premiums Are Based on Your Home’s Market Value

Home insurance premiums are based on your home’s replacement cost value, not its market value. Replacement cost considers factors like square footage, building materials, and labor costs. You or your agent can calculate this based on local construction costs or a home appraisal.

7. Homeowners Insurance Pays the Full Cost to Replace Your Personal Belongings

Personal possessions coverage pays to replace or repair items damaged or stolen in a covered event. However, it may not cover the full replacement cost unless you have a replacement cost value policy. Actual cash value policies reimburse based on the item’s current value, which may be lower. For high-value items, consider an endorsement for extra coverage.

8. Homeowners Insurance Always Pays the Full Cost of Rebuilding Your Home

Rebuilding costs can rise due to inflation, labor shortages, and changing building codes. After natural disasters, construction costs often increase. To avoid underinsurance, consider extras like inflation-adjusted coverage or extended replacement coverage, which adjusts to current construction costs.

9. Homeowners Insurance Covers All Structures on Your Property

Homeowners insurance may cover structures like sheds and detached garages, but coverage is typically limited to about 10% of your dwelling coverage. This may not be enough for some structures. Depending on usage, you may need additional insurance, such as landlord, home-sharing liability, or business insurance.

10. Your Credit Score Doesn’t Affect Your Home Insurance Premiums

In most states, insurers can use your credit-based insurance score to set premiums. This score, derived from your credit report, is one factor among others like location, claims history, and coverage amount. A higher credit-based insurance score can lead to lower premiums.

The Bottom Line

Homeowners insurance is essential, and shopping around can help you find the right coverage at a reasonable price. Check your credit report and score before shopping, and take steps to improve it if necessary. For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you find the best solutions for your home insurance and mortgage needs.

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