The Temptation of Low Premiums

Choosing homeowners insurance is a critical decision for protecting your most significant investment — your home. It's tempting to focus solely on the allure of low premiums, thinking you've found a great deal. However, as we explore the pitfalls of this approach, you'll understand why a comprehensive policy is more valuable than just a low price tag.

Coverage Gaps: What's Missing in the Fine Print

Cheap insurance often means limited coverage. When you're enticed by a low premium, it's crucial to scrutinize the policy details. Some inexpensive policies may exclude crucial coverages, leaving you vulnerable to financial loss in the event of specific damages or liabilities. It's essential to understand what's covered and, more importantly, what's not.

Crucial coverages to check for on your policy:

‍1) Replacement Cost: Check your policy to ensure your coverages are Replacement Cost and not Actual Cash Value. Some policy forms limit coverage to Actual Cash Value which could cause you to not be able to replace your lost items or dwelling in the case of a claim.

‍2) Water Damage: Some insurers limit or exclude water damage coverage on homeowners policies. This is a key cause of loss across the country and is a necessary coverage for your policy.

‍3) Exclusions: Some insurers add exclusions within their policy forms that exclude things like pools, animals, trampolines, and other liability hazards. Check the forms on your quote or policy to review the exclusions to be sure your policy doesn't exclude a coverage your home or family needs.

High Deductibles: The True Cost of Savings

While a low premium might seem like a win, it could come with a catch — high deductibles. A substantially deductible means you'll have to pay more out of pocket before your insurance kicks in. In the event of a claim, the initial savings from a cheap premium may quickly disappear when faced with a hefty deductible.

When reviewing your policy, look specifically for two different types of deductible: an All Other Perils (AOP) deductible and a Wind deductible.

Your AOP deductible is the deductible that would apply for all perils other than wind or other perils that have specified deductibles broken down on your declarations page.

Your Wind deductible would apply usually to perils of Wind and/or Hail and is usually a percentage deductible. Generally, the percentage applies to your dwelling value. For example, a $500,000 dwelling with a 5% Wind/Hail deductible would mean your out of pocket in the case of a wind/hail claim would be $25,000.

By checking your policy deductibles and doing the math, you might be surprised at how much you could owe out of pocket in the case of a claim. Higher deductibles usually mean lower premiums on your policy, but be sure your ready to take on that burden of cost in the case of a claim.

Underinsurance Risks: The Danger of Insufficient Coverage

Opting for the cheapest policy might mean insufficient coverage for your home's actual value. In the event of a significant loss, such as a fire or natural disaster, being underinsured could lead to financial devastation. It's crucial to assess your home's replacement cost and ensure your policy provides adequate protection.

Some key coverages to review:

1) Replacement Cost: Insuring your dwelling to 100% of it's current replacement cost is crucial. With rising building costs and inflation, your dwelling coverage should be reviewed (and likely increased) annually. If your insurance quote is cheap, check to see if you have a high enough dwelling value to replace your home in the case of a loss.

2) Contents Coverage: If you really think through what it would cost to replace all the clothing, furniture and household items inside your home-- you might be surprised at what it would cost to replace. Check your policy to be sure you have adequate contents coverage so you aren't left underinsured in the case of a claim.

Balancing Cost and Coverage

While it's understandable to seek affordable homeowners insurance, it's essential to strike a balance between cost and coverage. A policy that seems cheap upfront may end up costing more in the long run. Prioritize comprehensive coverage, reasonable deductibles, and excellent customer service to ensure your home is genuinely protected. Remember, the true value of insurance is in its ability to provide peace of mind and financial security.

By working with a qualified independent insurance agency, like IZC Insurance, you can feel confident that you are receiving the best coverage at a price that works for your budget.

Give us a call today at (404)-795-4807 or complete our free, no hassle online quote request below. We look forward to serving you!

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