We are at the end of our discussion of an Insurance.com survey regarding some commonly-held beliefs about insurance. We showed in our last post that the respondents were fairly well-informed about the ACA.
The same is not true for a key myth about homeowners insurance. The survey asked a very basic question and reaped a worrisome answer:
A homeowner should carry enough insurance to cover the market value of the house. A little more than half of the respondents (52 percent, more men than women) thought this was good advice. It is not. Anyone who has made a significant homeowners claim will tell you as much.
If a pipe bursts and your kitchen floods, you will have to pay for the repair now, so you can live in it safely, or later, so you can sell it. If you don’t fix it, the home will lose a lot of value. But if you fix it, you may finally get the stainless appliances, farm sink and granite countertops you’ve been dreaming about.
With homeowners insurance, the best course is to insure the house for what it would cost to rebuild.
When you think about it, it makes perfect sense. Jim lives in a ramshackle old cottage at the beach. When Florida has an unusually cold winter, Jim’s pipes freeze and burst, and his house is flooded.
The market value of the home was $100,000 before the flood. But the house was built before Hurricane Andrew, and Jim has put off updating all the wiring and the exterior of the home. To rebuild the house to code, even to update the house enough to sell it, Jim will need to spend a whole lot more than $100,000. Had he insured for the cost of rebuilding, he’d be in the clear.
The survey asked respondents about 10 specific misunderstandings about insurance. Out in the world, we know that some commonly held beliefs about insurance are, in fact, true. If you have questions about a claim that’s been denied or coverage that doesn’t make sense, you may want to sit down with an attorney with experience in insurance law.
Source: Insurance Journal, “10 Insurance Myths (Men Are More Likely Than Women to Believe 8 of Them),” Oct. 21, 2014Share