Understand Your Homeowners Insurance Coverage
All homeowners insurance coverage is not the same.
The popular carriers, you know the ones with the great ads on tv and the prominent office space in town, all those guys compete based on price. They know that if you are talking to them, you are likely talking to all the other insurers in town as well, and the only way they are going to win your business is by having the lowest price.
Now, you might think that’s great however there’s another part to this story.
No One Really Understands How Insurance Works
Insurance carriers also know that no one really understands insurance and how it works. Claims happen so infrequently that you likely don’t have much experience with how payouts and insurance actually work on a home or car. So, if you are buying insurance that you cannot fully understand and you are likely to buy the cheapest offering, how can they best compete?
By cutting coverage.
How Insurance Companies Cut Coverage
First, they cut the amount of insurance on your actual home. I’m talking about the rebuild cost per square foot. If you look at your coverage and then talk to a contractor about rebuilding your home – especially if you have nice appliances, countertops, and other touch-ups – you’ll likely find the actual cost to rebuild your home is much higher than your insurance.
The second way is through sublimits. The most important here in California is called ordinance and law. Your ordinance and law sublimit are how much the insurance company will cover for code changes since your last permitted remodel or construction.
In California, we have code upgrades all the time so if your home or remodel is just a few years old you could easily blow through these sublimits, leaving you without the full insurance coverage that you think you have.
Another sublimit that can cause problems is for water and sewer damage. And there are many, many more.
Know the Risks
I want to be clear; my point here is that you should know the risks you are taking. I am not saying whether you should cover those risks or not. That depends more on your specific situation and whether you are comfortable with the risks. All I’m saying is that there are risks here and they are knowable, so why not understand what they are and what it would cost to cover them?
The best way to do this is to have your insurance coverage reviewed by an independent agent.