Are All Homeowners Insurance Policies the Same?

Are all homeowners insurance policies the same?

This is the first post in our series on “Homeowners Insurance, What You Need to Know”.

When you’re looking for homeowners insurance policies, or just reviewing your existing policy for any adjustments you may need, it’s important to remember that not all homeowners insurance policies are the same.

A common misconception is that the dwelling amount you see on the data page is what you’ll get if and when you need to file a homeowners insurance claim.

But that is not always the case.

Depending on the terms in that thick packet of homeowners insurance coverage information – the fine print that many people skim or ignore – a homeowners policy might actually pay out the following:

  • Some might pay what’s written, such as the $300,000 written right there on your policy. No more, no less.
  • Some might pay, instead, what it actually costs to repair or rebuild all or part of your home using “like-kind and quality”. So, in this case, it might be $350,000, according to the estimates you’ve collected.
  • Some might pay somewhere in between – a percentage more than the $300,000 in your policy but not as much as needed to cover today’s actual costs of rebuilding or repairing your home. So, for example, you might receive $325,000 but not the $500,000 you need for quality completion of your home’s repair or reconstruction.

If you haven’t explored the realities of your homeowners insurance policy, you could discover which scenario you face while in a time of great stress, as you seek to fix or reconstruct your home. This is when financial surprises are not welcome.

Facing damage or destruction of your home will surely be overwhelming, scary, sad and frustrating – for you and for your family members. Knowing the ins and outs of your homeowners insurance policy can help reduce those overpowering emotions, and help you make smart claims decisions.

Which homeowners insurance policy should you choose?

The best type of policy would be policy type #2 above. Your payout would be determined by what it actually costs to repair or rebuild.

It’s a challenging time for home construction right now since we’re currently in an era of tradesman shortage and upward prices for lumber. Think about all of the damage in the southern states and islands from the recent hurricanes. Many homes and businesses have to be rebuilt, so a large number of skilled tradespeople have migrated south to help with the reconstruction effort.

So, you may find, now and in the future, that construction costs are elevated. It’s going to cost more than expected to repair or rebuild your home. Or your vacation home, as the case may be (Don’t forget about a healthy insurance policy for that property as well!). So you have to know what your payout situation could be if and when you face the need for home insurance money.

Here’s how to find out: look in that thick package of homeowner’s insurance policy information for the dwelling and loss settlement page. There, you will find out the details regarding what kind of settlement would be available. It’s a terrible mistake, and a great danger, to just agree to a homeowner’s insurance policy based on a figure, like that $300,000 choice.

Dig into the loss and settlement page details, and talk to a qualified financial representative, to better understand what you can expect from your homeowners insurance claims.

Find out more in our podcast here, and as always, contact me to discuss any questions you may have.

Posted in Insurance.

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