Consumer Reports ran a recent piece by Jeff Blyskal explaining what you don’t understand about your homeowner’s insurance and what it could cost you. It’s a valuable resource for homeowners (or those who rent and want to buy a home soon).
But even though Blyskal nailed a lot of important points that will save you money, we wanted to take this topic one step further to ensure you get the most out of your policy — without letting it drain all the dollars out of your wallet.
Let’s review some of the points made in the Consumer Reports article, debunk a few myths, and add in a couple more resources that you as a homeowner can use.
You’re Paying Too Much, But You Don’t Have to Shop Around
The Consumer Reports piece mentioned that many people overpay for insurance. We see this with our clients a lot, too.
Blyskal says this is because the consumer’s aren’t getting a good deal. To solve this problem, he suggests using an independent agent to help you shop around and save more money.
Another consumer expert, Clark Howard, suggests shopping around for new rates on your policies every three years to continue getting competitive rates. But why bother?
Because insurance companies tend to raise rates on existing companies every year. If you don’t pay attention, annual rate increases will leave you on the hook for an expensive homeowner’s insurance policy.
Shopping around is good advice. But what Blyskal fails to mention is that there’s more than this one way to save.
Keeping an eye on your deductibles is another way to ensure you don’t overpay for your policy, whether it’s for homeowner’s insurance, auto insurance, or any other kind of policy (like umbrella insurance or disability insurance).
Save by not opting for additional coverage on small items and by choosing a larger deductible. When you do, make sure you have enough stashed in your emergency fund to cover that deductible, and you’ll be prepared to cover the full amount should you ever need to do so.
Consider Flood Insurance (Even If You’re Not on the Water)
Blyskal does readers a big service by tackling the topic of flood insurance. As he points out, most people are unaware that their home is not covered by flood damage.
And no, you don’t need to be on the water or even near a body of water to get this kind of policy. Blyskal points out that not all the claims made on the national flood insurance program include those inside the designated special flood hazard areas.
In fact, 1 of every 4 claims is for a home that’s not in a flood plain at all. Which tells us that you can still see damage to your property, even if you don’t necessarily live in a flood zone.
If you’ve read our article that explains the ins and outs of auto insurance, you know that insurance is for catastrophic loss.
Flooding in your home can be catastrophic and devastating. This is why we agree with Blyskal’s suggestion to hold flood insurance regardless of where your home is, and we advise clients to at least consider this policy to protect their property against even the most unexpected of disasters.
Insure for the Big Stuff
Blyskal’s Consumer Reports article includes a note about how much of your assets (or property, or stuff on that property) is not covered by conventional homeowners insurance.
His solution? Purchase additional riders for that coverage. Here’s where we really disagree and feel Blyskal misunderstood the role of insurance here.
That’s because he suggested purchasing additional riders to cover losses of small amounts. This is not what insurance is for!
Insurance functions to cover big losses that would put you in a position of facing a serious financial hardship. Again, it’s designed to protect against catastrophic losses, not minor inconveniences.
If you lose $1500 worth of jewelry, this should not financially devastate you — which means you shouldn’t pay for $1500 worth of jewelry coverage through an additional rider.
That doesn’t mean a loss wouldn’t be frustrating, emotionally painful, or unpleasant to deal with. But you don’t need to shell out a lot of money on an insurance policy for something that’s not protecting you or your stuff from major financial loss.
Know the purpose of the insurance you’re getting and what it’s supposed to cover. Not fully understanding what you’re buying — and why — when you get a policy could cost you the most.