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The 5 most common homeowner’s insurance shortcomings

4560586060_468814b68eLate summer can be a stressful time for homeowners.

While wildfires and floods often plague the west, hurricanes threaten the U.S. East Coast. And tornadoes remain a concern throughout much of the country’s midsection.

All that means its prime season for homeowner’s claims too, as residences often bear the brunt of all this wild weather. It’s also a good time for you to double-check coverage’s to make sure you have enough protection in place should the worst happen to your home.

According to a recent study by Marshall & Swift/Boeckh, a provider of building cost data, nearly 60% of U.S. homes are underinsured, leaving almost two out of every three American homeowners at risk of financial disaster in the event of a catastrophe. Marshall  & Swift/Boeckh defines “underinsured” as any property that only carries enough insurance coverage to pay up to 78% of potential replacement costs.

Are you among this 60%? Chances are good.

Here are some of the more common mistakes that homeowners make to earn entry into this less-than-ideal risk group.

Remodel and forget it

Renovating a home can be a costly and stressful experience, but the good news is that such projects usually result in higher property values going forward, meaning you can often recover that investment when you sell your home.

So why not increase your property coverage once the renovations and done? Problem is many people forget to call and update their home’s value.

And certain property improvements might even trigger new types of coverage as well.

“If you put in a pool, you may need to upgrade your homeowners (insurance), but you also may need umbrella liability insurance,” Kevin M. Lynch, an assistant professor of insurance at the American College in Bryn Mawr, Pa.

Just covering your mortgage

In an ideal world, the amount you owe on your home should be less than the actual value of your home. The 2008 real estate crash pretty well laid that “rule” to rest, but the fact remains that too many people just think about their mortgage value when selecting their homeowner’s policy. So, in the event of a loss, you may be able pay off the mortgage but not necessarily rebuild your home.

A basic analysis of costs at the time of purchase will help avoid this problem entirely (a good reason to speak with an experienced agent).

Forgetting about flood insurance

As a general rule, flooding is not covered by typical homeowner’s policies. Still, if you own a home near a body of water — including lakes and streams — you should buy a flood insurance policy to protect your property.

Almost as serious an oversight as forgetting about flood insurance entirely is thinking that you don’t need it just because you live inland. If you live anywhere near water of any sort you’re at risk.

Wait, they update building codes?

If you own a century-old home, be aware that construction standards have evolved greatly over the decades. As a result, a lot of the work that was done years ago on older homes will not pass muster with today’s more stringent building code standards. That means, in the event of a disaster, your home (and a lot of similar older homes) will need to not only be rebuilt, but brought up to code as well.

This can get expensive, and needs to be taken into account when pricing homeowner’s insurance policies.

Materials costs are on the rise

Inflation impacts everything we buy, and construction materials are no exception.

In fact, according to, replacement costs have risen by roughly 7% per year since 2001, due in large part to surging prices for building materials, energy and labor.

“If you’ve been in that home for five years,” wrote, “your homeowners insurance has been reduced to two-thirds coverage of the home by those increases alone.”

Photo Credit: David Hilowitz via Compfight cc

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