This week’s guest poster is Glen Craig — you may know him from the popular personal finance blog Free From Broke. The goal of his blog, to make personal finance easy for his readers, aligns perfectly with Jean’s goals here, and so we were thrilled when he agreed to guest blog. Below, he calls attention to some possible shortfalls when it comes to your homeowners insurance.
As a result, it makes sense to protect it as much as you can. This usually means purchasing homeowners insurance.
Homeowners insurance is supposed to reimburse you for costs related to fixing damage to your home. Damage to your home can be financially devastating without insurance coverage.
Homeowners insurance offers peace of mind, and it offers financial protection — as long as you truly are covered.
While you might think you are covered for any circumstance, the truth is that a standard homeowners insurance policy comes with holes. You might not have the coverage you think you have, and that can result in an unpleasant and financially catastrophic surprise.
Here are 4 potential holes you might have in your homeowners coverage:
1. Natural Disasters
There are certain natural disasters that might not be covered by your homeowners insurance policy. Common exemptions from your policy include:
If you live in an area especially prone to these natural disasters, chances are that your regular homeowners policy won’t cover damage to your home. Instead, you will need to purchase separate coverage in order to make sure that you are adequately covered. Otherwise, the repair/rebuilding costs are borne entirely by you.
2. Required Upgrades to Your Home
If you live in an older home, and if new building codes have been issued for your locality, your homeowners policy probably won’t cover the cost.
Some believe that these requirements constitute “damage,” but this isn’t the case. If you are upgrading undamaged aspects of your home (such as electrical wiring or plumbing), your insurance company isn’t going to pick up the bill. You might have to get a home improvement loan to help you afford the costs of bringing your home up to code.
3. Home Office and Home Business Equipment
With an increasing number of people working from home and starting home businesses, it’s important to understand this aspect of your homeowners insurance coverage. If you have a dedicated home office, that portion of your home might not be covered by your homeowners policy.
Additionally, while the policy covers the contents of your home if they are damaged, this coverage may not extend to home business equipment.
Finally, realize that visitors coming to your home office to discuss business matters may not be covered by the liability coverage in your homeowners policy.
Some homeowners policies come with limited coverage for home business activities and equipment, but, even so, most of the time you will need to purchase additional coverage to bring the total up to snuff. When I upgraded my computer and home office space I made sure to give a call to my insurance agent to make sure my computer and other hardware would be covered.
4. Total Replacement
If your home is completely destroyed by some problem (usually fire), you expect that it will be rebuilt and that the value of your contents will be paid to you so that you can replace what was damaged or destroyed. Unfortunately, you might not actually have sufficient coverage for total replacement.
Here are the things to consider when determining whether or not total replacement is a hole in your homeowners policy: