5 pitfalls to avoid with your homeowners or renters insurance

 Construction worker on a ladder inspecting a roof.

Did your last homeowners insurance bill make you do a double take? You’re not alone. Due to more frequent and extreme weather events and high costs of labor and construction, homeowners insurance premiums jumped nationwide an average of 11.3% over the course of last year. And if you live in some states, like Texas, Arizona or Utah, your insurance premium could have gone up over 20%. As a result, some homeowners have considered reducing their coverage or even dropping home insurance altogether.

However, not having homeowners insurance (or renters insurance if you rent) or being underinsured could be a costly mistake down the road. Emergencies can be expensive, and not having enough coverage is a big risk to take to save on premiums.

And it's not only important to have enough coverage but also to set it up the right way. Here are five common pitfalls to avoid when it comes to your homeowners or renters insurance policy.  

1. Only being protected against a limited number of events
Your policy will only cover damage to your home if it’s caused by a covered event. Because you never know what can happen, we recommend having a policy that’s as broad as possible (also known as an open policy). 

2. Not filling coverage gaps
Even with the most comprehensive coverage, standard policies won’t cover everything. For instance, standard policies do not cover damage from flooding and earthquakes, and many have limited coverage for valuable items. Therefore, you should consider purchasing add-ons to your policy (known as endorsements) or supplementary coverage to cover any gaps in your policy. An agent or broker can walk you through the available options and help you assess which enhancements (if any) make sense for you. 

3. Insuring your home for actual cash value
If you make a claim, there are generally two ways your insurance will determine how much to pay: actual cash value (the value of the property lost reduced by wear and tear) or replacement cost (the cost of buying a brand-new item). Even though it’s more expensive, we recommend insuring your home for the replacement cost since your payout with actual cash value will be smaller and may not be enough to replace lost property. 

4. Having inadequate personal property coverage
In addition to ensuring your home gets adequate protection, you should make sure your personal property is also protected, especially since the default coverage typically included in policies tends to be limited. Pay attention to: 

  • Covered events. It’s common for your belongings to be covered for fewer events than your house, in which case you should consider getting an add-on to expand the events covered.
  • Reimbursement option. While damage to your house is usually covered at replacement cost, personal property tends to be covered by the more limited actual cash value. You can generally purchase an add-on to change the reimbursement method for personal property.
  • Coverage for valuable items. Standard policies usually limit coverage for high-value items, such as artwork, jewelry or silverware. For example, even though you might have personal property coverage for $100,000, the policy may set a special limit of only $1,000 for jewelry. If you have valuable items, you might want to consider insuring them separately using an add-on. 

5. Compromising on coverage to lower premiums
We generally don’t recommend compromising on coverage to lower your premiums. If you feel like you’re overpaying for homeowners insurance, you can try:

  • Asking whether you qualify for discounts. Many insurance companies offer discounts that can help lower your costs. For example, you might get a premium reduction for setting automatic payments or going paperless.
  • Bundling your policies. Your insurer might also lower your premiums if you buy multiple policies from them, such as your homeowners or renters and auto insurance.
  • Increasing your deductibles. Higher deductibles mean you’ll pay more out of pocket before your insurance kicks in, which can lower your premiums. Raising your deductibles might be worth considering if you have enough in your emergency fund to cover the higher amounts. But be aware that you’ll be on the hook for more money if an event occurs.
  • Shopping around. Getting quotes from other companies might help you find a more affordable policy. Be careful when comparing policies, since they might not offer the same coverage as your current policy, especially if one costs much less than the other.

Make sure your coverage stays updated
Generally, you should review your homeowners or renters insurance at least every five years — ideally with your auto and umbrella insurance (if you have one) — to take advantage of bundling discounts. Over time, things like home renovations, inflation and changing risks in your local area can affect your insurance needs as well as your premiums. However, you might need to review your insurance sooner if there’s an event that affects your coverage needs, such as moving to a new home, retitling your current home, acquiring new valuables or inheriting assets. 

Reviewing homeowners insurance policies can be stressful, but you don’t have to go it alone. If you have questions about your current policy or want help finding better options, an insurance agent or broker can be a good resource. And your Edward Jones financial advisor can help you fit your insurance premiums into your budget so that you can stay on track to meet your long-term financial goals.

This information is believed to be reliable but is general and not meant to cover all scenarios. You should discuss your specific situation with your insurance provider prior to making any decisions.