Anybody who purchases a house or condo is required to show proof of homeowners insurance before the closing can take place. It’s natural to want to save money when you’re making the biggest purchase of your life and for some buyers, it may be tempting to cut corners and buy the cheapest homeowners insurance they can find.
We always want our Addition Financial members to be wise about expenditures and to create budgets, but we don’t believe it’s a good idea to buy the cheapest homeowners insurance policy. In fact, doing so can leave you in a precarious position in the event you should need to file a claim.
If we want to talk about why you should avoid the cheapest homeowners insurance rate, then we’ll need to begin with an understanding of what the average premium for homeowners insurance is. According to Market Watch, the average homeowners insurance premium in the United States as of November 2021 is $1,249 per year or $104.08 per month.
You should keep in mind that costs may be higher or lower where you live. Florida has an average annual premium of $1,960, making it one of the most expensive states for home insurance, while the average cost for Oregon homeowners is just $706 per year.
In addition to location, your cost will be impacted by the size of your home, the cost to rebuild it and decisions you make about your deductible and policy limits.
Now that you know the average cost of homeowners insurance, here are five reasons to avoid the bargain rack when it comes to buying homeowners insurance.
When insurance fraud makes the news, it is almost always a situation where there is bad faith on the part of the person who is insured. However, there can also be bad faith on the part of the insurance company and you should be wary of any insurance provider who offers coverage at a price that’s too good to be true.
Some examples of things that a bad faith insurer might do include the following:
According to the National Association of Insurance Commissioners (NAIC), consumers should be wary of any insurer whose premiums are 15% to 20% lower than their competitors, since it is rare for such a big difference to exist for the same coverage. Likewise, you should be wary if a company’s contact information is not easy to find online. Legitimate insurers don’t hide their contact information. Your best bet is to contact your state’s Department of Insurance to verify that the home insurance company is legitimate before you buy a policy.
Low homeowners insurance cost policies are inexpensive for a reason. While you might save money up front, the truth is that buying a cheap policy could cost you a lot more down the line if you file a claim that isn’t paid or you don’t have the coverage you need.
For example, your dwelling coverage in a homeowners policy should be sufficient to rebuild your home from the ground up. While such catastrophic losses are rare, you don’t want to be caught in a situation where your home needs to be rebuilt only to find that you don’t have the coverage limits you need to do it.
Another example of not having enough coverage would be if you bought a home with older appliances and systems and signed up for a policy that offers reimbursement for the actual cash value of these things instead of for the replacement value. An old dishwasher might only be worth $300 but could cost more than $1,000 to replace.
The purpose of homeowners insurance is to cover you in the event that the structure of your home or your belongings are damaged, as well as to provide coverage for personal injuries and property damage incurred by visitors to your home. Anytime you file a claim, you will be responsible for paying the policy deductible.
One of the hallmarks of cheap homeowners insurance is a high deductible. While it is legitimate to save money by opting for a higher deductible, it’s also risky. If you choose a deductible that you can’t afford to pay out of pocket, then you could put yourself in a financial hole if your home incurs major damage – particularly if you find it necessary to file more than one claim in a short period of time.
You should choose a deductible that is affordable for you even if it means paying a higher premium for your insurance. For most people, spreading out the cost of homeowners insurance over a year is easier to do than to come up with the funds to pay a high deductible.
There’s no denying that we live in a litigious society and opting for the cheapest home insurance policy could leave you vulnerable to a lawsuit in the event that a guest in your home is injured (or their property is damaged) while they are visiting.
The liability portion of homeowners insurance is there to protect you from any liability as the owner of a home. If someone falls down the stairs or has their belongings ruined, you can file a claim to reimburse their medical expenses or the cost of replacing their personal property. With cheap homeowners insurance, you might not have enough coverage and in the event of a catastrophic event, you might find yourself embroiled in legal proceedings.
You should have enough liability coverage to protect you from litigation. While buying quality homeowners insurance doesn’t guarantee that you won’t be sued, it does minimize the chances because you can be sure you have the coverage you need.
The final reason to avoid buying the cheapest homeowners insurance is that it can be stressful knowing that you have a high deductible or lower limits than what you need to protect yourself and your family.
You might save a few dollars a month, but cheap coverage doesn’t provide you with the same peace of mind as a quality policy with the necessary limits and an affordable deductible. Owning a home is a big responsibility and buying the right homeowners insurance will provide you with the comfort of knowing you’ll be covered if something catastrophic (or even just expensive) should happen to your home.
We’ve covered the five reasons to steer clear of the cheapest homeowners insurance. Now, let’s talk about some tips to help you evaluate quotes and policies for homeowners insurance.
Buying cheap home insurance might seem like a smart way to save money but it can cost you far more than you save in the long term. The five reasons to avoid cheap insurance that we’ve covered here illustrate that point. Your best bet is to get quotes from multiple companies and compare them to get quality insurance at a price you can afford.
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