Insurance is complex for a reason, it keeps the consumer from getting the best deal possible. It also keeps us from asking questions about our policies. In an effort to help our Military Crashpad customers we want to unpack some of that complexity. Renter’s and homeowners insurance are necessities no matter your living situation. Homeowners insurance is mandated by law but unfortunately because renter’s insurance is optional, many people don’t buy it. Renters insurance is really cheap and can save you the anxiety of ‘What ifs’ if you do your due diligence, take pictures and get yourself some quality renters insurance.
Even if you have insurance, you need to make sure you have the right coverage and avoid these common mistakes etc.
1. Understanding what the actual value of your home is. (Homeowner’s Insurance)
An insurer is looking at the cost to replace or build at today’s building costs, not the market value. What you paid for the home is only a starting point. An agent can do an assessment using you carrier’s ‘insurance to value’ workups. Perhaps the home sits on a large plot of land – we are not insuring the land, but we do need to address this when we discuss the liability portion of the policy. Essentially keep in mind that you want to insure your home for what it would cost to replace it today, not when it was built.
2. Not knowing the value of your possessions.
Think of the cost to replace, not the garage sale price. If you lost everything in a flood or fire, how much would it cost to replace it all? Keeping a detailed inventory, with pictures, can help you tremendously if you have to file a claim. Even better than a list, a video that highlights everything you own. You will be so much better off if and when a claim occurs.
Don’t keep the list/pictures/video in the home – find a safe place away from the home. Not having an inventory is a mistake, keeping it in your home is also a mistake.
3. Not trying to understand the difference between Actual Cash Value (ACV) and Replacement Cost.
Actual cash value and replacement cost are often used interchangeably but they are very different.
Actual Cash Value (ACV) is not equal to replacement cost value (RCV). ACV is computed by subtracting depreciation from replacement cost. The depreciation is usually calculated by establishing a useful life of the item determining what percentage of that life remains. This percentage multiplied by the replacement cost equals the ACV.
For example if you have a fire in your home and it destroys your sofa, which cost you $2000. The replacement cost for that sofa is $2,000, what it would cost you to replace it today. The actual cash value is what it was worth when it was destroyed. They will use the lifespan of most sofas (at least according to them) to come up with the remaining lifespan of the couch. Let’s say they determine your sofa had gone through half of it’s lifespan. They will take the replacement cost times 50% (half of its life left remember) and give you $1,000.
Most people assume that they will receive the replacement cost for what they own when they file an insurance claim, that isn’t the case.
4. Falling for the “crazy things need to be covered” line.
You know all those ludicrous (and awesome) insurance commercials that talk about all the crazy things that might happen to you as being ‘covered’ when in reality most insurance carriers will always cover the crazy. What they’ll try and get you on is the common things, the standing water in the basement or the gas leak. If it’s more likely to happen your insurance company will be more likely to try and find a way out of paying. Every insurance company covers comets falling onto your apartment complex, because it almost never happens.
Don’t let an agent convince you that the unusual won’t be covered, it will.
5. Not checking what discounts are available.
Common discounts include policies with the same insurance carrier; security systems in place and smoke and fire alarms installed. Make sure you ask for any and all available discounts, an agent won’t always bring them up if you don’t ask.
6. Skimping on Coverage to save costs.
One of the easiest ways to save on your insurance premiums is to increase your deductible. Doing so means you have to pay more before your insurance company will pay a claim. Doing so may save you in the short term, but isn’t always in your best interest. Make sure that you have in savings enough to cover all of your deductibles for every policy you have. Before you make changes to your policy make sure you ask “how will this impact my coverage in a claim situation?”
Do you all have renter’s or homeowner’s insurance? Do you have any stories where you were either grateful you had insurance or regretting that you’d overlooked it?