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Scrutinizing Contract Terms Affects The Cost Of Homeowners Insurance

By Mike Heuer

There are many ways home owners insurance can be affected from a cost standpoint, and when it comes to cost savings, not reading the insurance contract can lead to a great deal of expense that might have been avoided.

There are several big mistakes people can make when they purchase a home owners insurance contract. One of the biggest is not having flood insurance protection. The cost of homeowners insurance almost never includes flood insurance coverage, which either much be bought from the insurer for additional cost or from the National Flood Insurance Program, which typically limits coverage to $250,000 and can be very expensive if located at or below a traditional flood plain.

While many homeowners make the mistake of thinking their homeowners insurance cost includes flood insurance coverage, another common error many make is thinking they don’t need flood insurance at all. Unless located in a federally designated flood plain, flood insurance is not mandated by law. And many homes are located in areas where no floods have struck in decades or more. But a rare storm or stretch of bad weather can cause flooding in almost any environment.

Many homeowners in New Jersey and nearby states felt they had no need for flood insurance, but Hurricane Sandy struck and damaged or destroyed tens of thousands of homes in and around the Garden State. Those living near the Atlantic coast generally had coverage. But many homes located further inland where flooding still occurred had no such protection.

Another common mistake is thinking homes are protected against sewage backups and mold damages. There are many ways mold can get into a home, from internal leaks to external water seepage, and not all homeowners insurance policies will pay for repairing damages caused by mold. If located in a humid environment, mold can be a particularly strong threat, especially in older homes that do not have mold-proof and if no dehumidifier is used to reduce humidity levels and corresponding moisture.

Sewage backups often are excluded by many policies, but an endorsement can be purchased to protect against the insidious peril. The cost of cleaning up and repairing damages after a sewage backup can be quite high, but not nearly as high as the $30 or so in additional homeowners insurance cost to add the coverage by purchasing an endorsement to protect against the peril.

Another common mistake that can cost hundreds and possibly thousands of dollars is misunderstanding how a deductible might be applied. Just as some perils are covered and others are not, a deductible can vary based on the cause of damage to a home. The deductibles often are applied differently to reduce the risk insurers take on when covering a home.

For example, damage or destruction caused by an earthquake might result in a deductible applied based on a percentage of the homeowners insurance cost. If a policy has a coverage limit of $250,000, the actual deductible might be as much as 15 percent of the total, resulting in a nearly $40,000 out-of-pocket cost for homeowners. The same might be true of windstorm damage or damages caused by a hurricane or tropical storm.

Reading the insurance plan and knowing how deductibles might be applied can save a great deal of aggravation for homeowners.