Your buyers recently closed on a home. The paperwork has been signed, and keys have been transferred from the previous homeowner to your clients. Naturally, the next milestone is purchasing a homeowner’s insurance policy that complements both the budget and the needs of your clients.
As a buyer’s agent, you can help cultivate an understanding of the important factors new homeowners need to consider when purchasing a policy.
Here are a few pitfalls homebuyers can avoid when purchasing homeowner’s insurance:
1. Underinsuring their new home
Failing to purchase enough insurance could leave your new homeowners with thousands of dollars in uncovered damages or losses.
Outside structure: As market prices continue to rise, so does the cost to rebuild. If you only insure up to $200,000 but have $250,000 in damages, your new homeowner’s are going to be at a $50,000 deficit.
Valuables items plus: A valuable items plus places higher limits on more expensive items such as engagement rings, cameras, computers and expensive antiques. It’s good to get these items appraised for their true worth and adjust limits accordingly.
Home improvements: As time goes on, your homeowners will likely make improvements such as renovating the kitchen, bathroom or adding on an addition. When it comes to insurance, as many as 40 percent of home insurance buyers do not update their policy to match their improvements.
2. Thinking deductibles are fixed
Most people believe that their deductible is fixed in all cases. While true for many scenarios, this may not be the case for major weather events such as windstorms or hurricanes.
In those cases, the deductible may not be a fixed $500 or $1,000, but rather a percentage of their coverage amount. This creates a much higher deductible than they originally anticipated.
The best advice you can provide is to ask their chosen insurance agent about any changes in deductible amounts in accordance with the type of claim filed.
3. Assuming flood insurance is included
Baton Rouge, Louisiana/IIP Photo Archive
Many first-time homebuyers are under the illusion that flood insurance comes bundled with a homeowner’s insurance policy, or they assume they do not need to purchase flood insurance because they live in a low-risk zone.
Any experienced insurance agent will tell you that flooding can happen in any area, regardless of predicted risk. Just let the facts speak for themselves.
- The National Flood Insurance Program (NFIP) reports that more than 20 percent of flood insurance claims happen outside of identified flood plains.
- Low-risk zones receive one-third of federal disaster assistance for flooding.
- Over one decade (2006-2015), flood insurance claims averaged more than $1.9 billion per year.
While Mother Nature can’t be controlled, you can equip your buyers with knowledge that can help them bypass costly mistakes.
If they need a little added persuasion, let them know that flood insurance is extremely affordable with most paying $100 or less a year.
4. Figuring mold or sewage-backup is included
While a common concern for homeowners today, many will be surprised to know that these things are not covered under a standard homeowner’s insurance policy.
Out-of-date sewage lines lead to increased sewage backup, which can damage the entire structure of a home, including floors, walls, furniture and electrical systems.
Mold has over 1,000 species that grow in the United States. Although prevention is the best way to avoid growth altogether, a small addition to their policy should protect their new home should a situation arise.
5. Opting out of earthquake coverage
Living in New England, most people choose to opt-out of earthquake insurance because seismic maps indicate that this area is at low risk for this natural disaster.
Although viewed as an educated decision for some, we would argue that natural disasters can happen anywhere at any time, even in the least likely of places.
New homeowners, especially first-time homeowners, don’t know what they don’t know, so it’s your job to help educate them before it’s too late.
Kathy Francioso is a personal lines manager at H&K Insurance Agency Inc. in the Boston area. Follow H&K on Facebook or Twitter.