Pop Quiz, Hotshot, err… Homeowner

Sorry for the title of this post. But ever since 1994, I have an inability to say the words “Pop Quiz” without thinking of this scene from the movie Speed.

So, on to the actual quiz…

It’s summertime in Florida, and that means hurricane season. But it’s not just Florida that’s having to worry about extreme weather this summer as fires rage out west, the East Coast has record breaking heat and power loss, and the Mid-West deals with extreme drought conditions. So, what better excuse than crazy weather to figure out what’s going on in terms of your home insurance?

Without tracking down your insurance documents…

  1. What’s the insured value of your home? Bonus – is it based on market value or reconstruction value?
  2. What’s the deductible on your homeowner’s policy?
  3. Do you have any special deductibles? Hurricane? Sinkhole? Mudslide?
  4. When your deductible is listed as a percentage (%), what’s it a percent of?
  5. Do you have coverage for flood damage? If so, what is the maximum payout of your flood policy?
  6. Is your basement covered by flood insurance?
  7. Is there anything on your property that isn’t covered by your insurance?
  8. If your home is damaged in 3 hurricanes in one season, how many times do you have to pay the hurricane deductible for the entire season?
  9. Does your policy cover a carport? An detached garage? A storage shed or fencing? Trees or landscaping?
  10. If you’re in a condo, where does your insurance stop and the condo’s insurance start? How do balconies play into that?

The answers to all of these questions are going to depend largely on where you live, and your insurance coverage.

Insurance is such a funny service to buy. You hope you never have to use it, but when something bad happens, you couldn’t be more grateful to have it. That is, until you find out that you aren’t quite as covered as you thought you were. And then, it’s really too late.

It’s really important to understand your the risk you are responsible for vs. the risk that your insurer is assuming. While you may think your deductible is all you need to know, go back and read your policy. They don’t mail out 30+ pages of legalese every year to kill forests (at least I hope not), they do it to notify you of all the different loopholes in your coverage that allow insurers to get out of paying for different repairs.

Admittedly, your insurance policy is not a fun or light read, but that’s where your insurance agent comes in. She’s getting paid to sell you that policy, so make her work for it. Your agent should be able to answer all your “what if” questions when it comes to what risks you are taking on financially with your house.

What are some of the big misconceptions about homeowner’s insurance coverage?

  • Anything not under your roof may not be covered by your policy. This depends a lot from policy to policy, so you want to make sure you know whether that new deck or outdoor kitchen is included in your policy.
  • Flood insurance probably covers less than you think. Flood policies are heavily regulated by FEMA in the US, and include just a minimum of coverage. Residential flood policies are usually for $250K or less, and basements (or finished partial basements) or anything under a minimum number of feet above sea level is generally excluded from being covered.
  • Hurricane deductibles are a percentage of your insured value, NOT your premium. A friend told me she was so glad that her hurricane deductible was just $60 (after I mentioned ours was over $3,000). Turns out, she thought the 2% hurricane deductible in their policy meant it was 2% of their ($3,000) homeowner’s insurance premium. In reality, it’s 2% of the insured value on their property. 2%*200K = $4,000. Big difference compared to $60.
  • Your mortgage company might not know what is and isn’t covered, even if they pay the bill. Just because your insurance gets paid out of your escrow account doesn’t mean your mortgage company knows what is and isn’t covered. And even if they do, they may have a much higher tolerance for risk than you do, so don’t trust them to look out for your best interests.

Obviously, I’ve got a bit of a Florida bias when it comes to misconceptions and loopholes that are in insurance policies. So what are some of the loopholes in your policy? Did you know about them before you bought your policy, or find out the hard way?

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