10 Most Costly Homeowner’s Insurance Myths

If you’re one of the two-thirds of Americans who own a home, chances are you have homeowner’s insurance. As one of the most common kinds of insurance it’s the subject of more myths than others.

Mistakenly basing your decisions on them can put your home at risk. These costly misconceptions cost unsuspecting homeowners hundreds of millions of dollars a year.

We’ve compiled a list of 10 of the most costly homeowner’s insurance myths to help you steer clear of trouble:

1. Everyone I hire to work around my home is covered

It’s true that some people you hire to work around your home are covered under the personal property portion of your policy. Housekeepers, babysitters, and pet sitters are covered by your homeowner’s insurance if they are hurt while working for you.

Contractors, such as plumbers, carpenters and electricians are not covered by your homeowner’s insurance. This includes unlicensed part-time handymen doing minor repairs. The best practice is to ask for a current certificate of insurance from any contractor or handyman before they start work.

2. Homeowner’s insurance rate will go up if I file a claim

It’s possible, but not likely that your insurance company will increase your homeowner’s insurance premium if file a claim. Rate increases are based on your claim history over time rather than on a single incident. So chances are filing a single claim every few years is not going to cause an increase. However, regularly filing small claims can cause an insurer to take a look at your premium and ask for an increase.

Every insurance company has its own internal criteria that trigger increases. There are some things you can do to reduce that possibility.

Before you file a claim think about your deductible. If the amount of your claim will only be for a small amount more than your deductible consider paying for it yourself. The few extra dollars you spend now may save you more over the next few years of paying a higher rate.

3. Mold is always covered by homeowner’s insurance

The exact opposite is true; mold is almost never covered. This is because mold is usually the result of a lack of proper maintenance.

A a leaky pipe that causes mold to grow inside a wall is not covered. Insurance companies expect you to keep your home in good repair, which includes fixing leaks. For mold to be covered you must prove that it is because of an insured peril.

4. All of my belongings are covered

The personal property portion of your homeowner’s insurance policy will have several limits you should be aware of. The first is the total amount they will reimburse you for if everything in your home is destroyed or stolen.

There are also individual limits for valuables such as jewelry and art. On a standard policy, these limits can be as low as $1,500. Separate endorsements can be added to increase your limits for jewelry, art, and other valuables. You may want to consider raising your total coverage for all of your possessions. This is especially true if you have very expensive furnishings and clothes.

5. Mortgage banker will make sure I have enough

This is a very dangerous myth that comes from the belief that the bank that holds your mortgage wants to protect your home as much as you do. This is not true. The only portion of your home’s value that your mortgage banker is concerned with is the amount you owe them.

Your personal property and the current value of your home don’t matter to your bank. The bank’s only concern is that you have enough coverage to pay off your outstanding mortgage balance. The only person who is cares if you have enough homeowner’s insurance is you.

6. Water and flood damage are the same thing

While flood damage is always the result of water, water damage is not always the result of flooding. That is an important difference.

For insurance purposes, water damage is caused by water before it hits the ground. For example, a burst pipe or rain that comes in through a storm damaged roof is covered. However, once the water hits the ground, it causes flood damage and is not covered. This includes storm runoff, overflowing streams, rivers or lakes and tidal storm surge.

Another myth is that your home is only in danger of flooding if you live close to the ocean, a river, or other large body of water. This is also not true.

You can check your home’s flood risk online. The National Flood Insurance Program lets you enter your address and find out what your flood risk is. Since flooding is not covered by homeowner’s insurance the government does far less than you might expect.

7. I don’t need a home inventory

There are two reasons you should have an updated home inventory: Making sure you have enough coverage, and to file a claim.

A home inventory will enable you to have an accurate record of your belongings. It will also allow you to total up their value. You will then be able to make sure the contents portion of your policy is high enough.

A home inventory may be necessary if your home is damaged or burglarized. Some insurance company will want to know exactly what was lost before they issue a check and a home inventory makes that simple.

8. My home-based business is covered

Owning and operating a business from home has become very popular in recent years. Even though you own your business along with its furniture and equipment, it isn’t considered personal property. That means it isn’t covered by your homeowner’s insurance policy if it’s damaged or stolen.

Some insurance companies allow you to add a rider to cover your home business’ furniture and equipment. You must apply this coverage and pay the added premium.

A popular sub-myth is that you if you don’t tell the insurance company about the business, they won’t know. This is also not true. The result if found out is that you will have committed fraud and your entire claim may be denied.

9. I’m protected against termites and other pests

Your homeowner’s insurance policy will not pay for damage caused by termites, mice, rats, and other pests. Keeping your home free of insects and other pests is considered routine maintenance. The damage that is caused by these home invaders is viewed as neglect by you.

Whether it’s a termite infestation that destroys your porch or rodents that gnaw though your electrical panel you are responsible. The cost of repairing damage is your responsibility.

10. Hotel expenses are always covered

If you’re unable to live in your home while repairs are being made, your insurance may not pay for your hotelmotel room. On the other hand, some policies will reimburse you for all or a portion of your living expenses while your home is being repaired.

You should read your policy carefully looking for a loss of use provision. If it is not expressly listed as a covered expense it is not covered. If you do have loss of use protection there may also be limitations on the amount and duration of reimbursement.