How to avoid common home insurance mistakes

DATE | 09/26/23
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Your biggest investment needs the right protection. Don’t let these typical mistakes leave you at risk for financial loss.

Have you made any of these mistakes with your home insurance coverage? If so, don’t worry—Member Benefits can help you sort it out.

Not keeping up with costs

We all know that inflation has affected our budgets recently. Inflation hit 8.5% in March 2022, a 40-year high. You’re probably paying attention to the rising cost of food and gas, but have you thought about the impact of inflation on the insurance coverage for your home?

A 2022 American Property Casualty Insurance Association/Harris Poll survey reveals a majority of insured homeowners have not taken steps to ensure their insurance coverage is keeping pace with rising inflation, despite increased building costs and potential reconstruction delays due to labor or materials shortages. The price of construction materials rose by 44 percent from December 2019 through December 2021, yet two-thirds of homeowners may be without key additional coverages that can better protect them in this economic climate.

Some companies offer inflation guard protection that automatically adjusts your coverage limits by a certain percentage each year to help keep up with increases in material and personal property costs. However, you shouldn’t rely solely on this option to keep your coverage current—especially now.

Confusing market or assessed value with the cost to rebuild

There is some confusion between a home’s replacement cost, market value, and assessed value and which one to use when purchasing coverage for your home. These values are usually not the same and serve different purposes.

Replacement cost is how much it would cost to rebuild your house in the same spot with materials of like kind and quality.

Market value is how much you could expect to get for your home in the current real estate market if you were to sell.

Assessed value is the dollar amount placed on your home by your local government for taxation purposes. The higher the assessed value, the more you pay in taxes.

The cost to rebuild your home in the event of a fire or other loss doesn’t follow market value, and as we’ve seen recently, the prices of labor and materials don’t necessarily follow the housing market. When insuring your home, base it on replacement cost—you should have enough coverage to rebuild your home if needed. Using assessed or market value to decide on this amount could mean you are under- or over-insured.

Underestimating your liability coverage needs

Most experts recommend at least $300,000 worth of home liability coverage, but others like Member Benefits recommend even more. “Our home policy includes $500,000 of liability coverage. We don’t even offer anything lower,” says Kay Licciardello, Personal Insurance Consultant Supervisor. “The additional coverage is a relatively inexpensive way for members to protect their assets. It offers protection for you and all family members who live with you, including kids away at college, and it typically covers incidents on or away from your property.”

Because typical home policies can still leave you financially vulnerable, you should also consider additional liability insurance (umbrella insurance) for more protection. Umbrella insurance provides protection above and beyond the limits of your existing home policy and for claims that may be excluded from that policy. It covers not just the policyholder but also other members of their family or household. For example, maybe your dog viciously attacks a neighbor and your neighbor sues you, or your teenager has a party where an underage guest receives a driving under the influence offense and their parents sue you. Your costs could easily exceed your home policy’s $500,000 liability limit. An umbrella policy would add additional liability protection at a very affordable price.

Not creating a home inventory

Only 20% of insured homeowners created or updated a home inventory less than a year ago; 25% have never completed one (2022 American Property Casualty Insurance Association/Harris Poll). Don’t risk undervaluing your possessions if catastrophe strikes. Take photos, video, or download our free Personal Property Home Inventory eBook.

Failing to have insurance reviewed or adjusted

Some people buy their policy and never look at it again, despite the fact that they may have made major improvements to their home or that the cost of materials and labor may have increased significantly since purchasing their policy. Among insured homeowners who completed renovations or remodels during the pandemic, only 40% updated their home insurance to account for those changes. Just 30% of insured homeowners updated their policy less than a year ago, and 36% reviewed their policy less than a year ago (2022 American Property Casualty Insurance Association/Harris Poll).

Evaluating your coverage periodically will help to ensure you have adequate protection. Member Benefits can help.

Not understanding how your premium is determined

There is a big misconception among homeowners that the value of their land (51% surveyed) and the market value of their home (46% surveyed) affect their home insurance rates (Forbes Advisor survey, 2022). Your home’s location, condition, land value, and the selling prices of comparable properties, among other things, may be factored into market and assessed values, but not your insurance rates. Home insurance rates are based on the cost to rebuild the house, coverage limits, your personal claims history, and other factors.

Basing your insurance decisions solely on price

Price has always been a sticking point with insurance. Insurance is one of those gotta-have intangibles that unless you’ve been in a situation where you’ve needed it, the value isn’t always obvious. Maybe you went for the lowest price when you chose your insurance. But is it worth increasing your financial risk to save a few bucks?

Kay shares an example. “Say your house is insured for $250,000, but the replacement cost of your home is calculated at $300,000. That’s a $50,000 difference. That’s a lot of money if you need to rebuild your home. In this situation, the premium difference would be about $125 per year. It doesn’t make sense to underinsure a home by $50,000 for such a small annual savings,” she explains. “A better way to save money on home insurance premiums is to increase your deductible. Choosing a higher deductible could reduce your premium 15% or more—perhaps even as much as 30%.”

What’s going on with insurance premiums?

Many homeowners have noticed their home insurance bill has increased recently. The average premium for home insurance rose 12.1 percent from May 2021 to May 2022; the average annual increase was $134 (

Longer waits for qualified contractors, delayed supplies, and the rising costs of materials lead to higher claims, increasing premium. And those experiencing longer waits to get back into their home after renovating are claiming more living expenses from their policies as well.

As costs continue to rise, it’s important to make sure your insurance coverages are still appropriate. Don’t try to save on premium costs by shortchanging your coverage. This is the primary reason homeowners find themselves without enough coverage when they need it. Increasing your deductible is a better way to manage your premium costs. And make sure you’re getting all of the discounts to which you’re entitled.