Buying Home Insurance: 5 Dangers to Avoid

Insuring your home can be a confusing process. There are dozens of companies in every state offering homeowner's insurance and comparing all of the features and prices can give you a headache. Each company maintains different rules and every policy comes with its own features. If the insurance salesperson is working on commission, his or her financial biases may come into play. How do you know you are getting adequate insurance at a good price? Here are the five main dangers to avoid when buying home insurance:

1. Too much insurance

It may seem like a good idea to get as much insurance as you can against losses to your home or contents. However, insurance only covers actual losses, so if you are over-insured, you will not be able to benefit from the extra coverage. One common reason for over-insurance is including the land value in the coverage. For example, if you bought your house for $200,000, part of that cost belongs to the land. The land will not be damaged by theft or fire and therefore, you do not need a $200,000 policy. Have an appraiser calculate the replacement cost of your house alone when deciding on an insurance policy face value.

2. Too little insurance

On the flip side, don't be tempted to save money on premiums by being under-insured. Make sure that your policy covers all of the major loss categories: fire, theft, flood, and wind and that it will provide enough funds to replace the losses. Ensure that your deductible is low enough that you can afford to pay it in the case of a loss.

3. Poor claims service history

Not all home insurance providers are alike and each offers a different level of service. You may never really know what kind of company you are dealing with until you file your first claim but how your insurance company treats you when you have a loss is important. Before buying a policy, research the company's claims service reputation on the internet and find out how satisfied customers are when they have to file a claim. The most important quality in an insurance company is prompt loss payment. If your insurance company is going to argue with you for six months over valuations or coverage, you can find yourself scrambling to cover expenses in the interim. Choose a company with a solid reputation. The cheapest insurance is rarely the best.

4. Surprise uninsured losses

No one wants to read an insurance policy from front to back but, if you are a smart insurance shopper, that is exactly what you will do before you buy insurance. In all of that legalese, you will find out what will happen if you ever have to file a claim. Look for specific exclusions to coverage such as "acts of God" like wind, rain or flood damage. Many homeowners end up with nasty surprises when they find out they are not covered when filing a claim. Know what the fine print says.

5. Inability to prove losses

One of the most common areas of friction with a home insurance company is in proving the value of the losses. For example, if a thief robs your home, you will be required to provide to the insurance company a listing of what was stolen and its value. Insurance companies may balk at paying out large claims for personal items such as stamp collections, antiques or jewelry. Take an inventory of your home contents now so that you have a complete list. Photograph any high-value items so that you have proof to provide to the insurance company. For some high-value collections, you may have to take out separate insurance or have the items specifically listed in the policy.

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