5 Home Insurance Decisions It’s
Risky to Make on Your Own
Who doesn’t feel pride in clearing a clogged sink, changing an element in an oven or replacing a deadbolt lock without calling a handyman? There’s no question that a successful do-it-yourself project can save you time and money — in addition to padding your ego.When shopping online for insurance, many companies allow you to DIY your insurance policy, letting you choose your coverage limits, deductibles and optional coverages. Potential policyholders can select several coverage options and see how they affect the cost of the policy.
But remember that twinge of uncertainty you felt when you first filled the sink, brought the oven up to temperature or locked the new deadbolt? Imagine how nervous you’d feel trying out your home insurance for the first time after you’ve done it yourself.
When it comes to a financial product like insurance that protects your biggest investments, it’s a good idea to rely on the professionals for advice instead of doing it yourself. That doesn’t mean your input isn’t needed during the process — only that there are steps about which you shouldn’t necessarily have the last word. Here are five home insurance DIYs you shouldn’t do yourself.
Setting your dwelling coverage
Dwelling coverage is the part of your home insurance policy that protects the structure of your home from specified perils such as fire, wind and hail. The amount of dwelling coverage you purchase plays a major role in determining how much you’ll pay for protection.
That means a DIY-er could be tempted to set the amount of dwelling coverage low. But this is a terrible idea, because the amount of dwelling coverage you purchase also affects the amount of coverage you have for your possessions, for other structures on the property, and for additional living expenses should your home be declared uninhabitable because of a covered peril.
All those protections — and more — are typically included in a standard home insurance policy. Lowballing your dwelling coverage means you’re also probably lowballing these coverages.
So how much dwelling coverage should you buy? Enough to rebuild your home from the ground up. That’s not the same as the amount you paid for the house, however. It’s the product of multiplying the square footage of your home by local building costs.
You likely don’t have a good handle on local building costs, but a licensed insurance agent will. He or she can ensure you have enough dwelling coverage to rebuild your house the way you want it — which should also give you enough protection in the other parts of your policy.
Deciding on your deductible
Your deductible is the amount you agree to pay toward a covered claim. Many “experts” advise you to set your deductible high because it will reduce your annual premium. But what happens if your deductible is so high you can’t pay it? You don’t get coverage, that’s what.
An agent can make sure you’re not setting that deductible too high, and chasing immediate savings while putting your future at risk.
Protecting your possessions
As mentioned above, standard home insurance typically includes coverage for your possessions. Usually your coverage limit is set between 50 percent and 70 percent of your dwelling coverage limit. For example, if you have $200,000 worth of dwelling coverage, you have between $100,000 and $140,000 worth of protection for your belongings.
Sounds simple, right? Not so fast. Certain high-value items such as jewelry, furs and collectibles can have limits on payouts. That means your most valuable possessions might not be replaced if they’re stolen or destroyed by a covered peril.
A licensed agent can help you schedule endorsements — that is, extend your coverage limits — for these items.
Establishing liability limits
Standard home insurance policies also feature two types of liability insurance that can help if someone gets hurt on your property:
- Personal liability protection can assist if the injured person sues. It can help pay your legal defense as well as any award — but only up to your coverage limits. That limit typically is set at $100,000. So who is responsible if your case exceeds $100,000? You are.
- Medical payments coverage helps pay medical costs if the injured person doesn’t sue. The coverage limit is set at $1,000. Again, you would be responsible for expenses that exceed that amount.
Most DIY-ers might not realize that these limits exist, or know that you can extend them for a fairly small additional amount.
Dropping coverage when your mortgage is paid off
There’s no law requiring you to have home insurance; however, your mortgage lender will demand you carry a policy to protect its investment.
So what happens when you pay off the mortgage? You could drop your home insurance. But then you’d be left with no help should fire or another covered peril damage or destroy your home. Consider these average claim amounts from the Insurance Information Institute:
- Fire: $34,306
- Liability: $18,804
- Wind/hail: $7,307
- Theft: $3,428
Without adequate home insurance, you could bear the full cost of these claims.
It’s great to branch out from your comfort zone and take on a challenge on your own. But sometimes Doing It Yourself results in Screwing It Up Yourself. Make sure your DIY home insurance doesn’t turn into SI(U)Y home insurance.