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Tips to Find the Best Homeowners Insurance Coverage

Jason Van Steenwyk, NerdWallet
March 16, 2014

For most middle-class families, the home is the most valuable asset -- often outstripping even the 401(k) and 403(b) for all but the most diligent savers.

Yes, for generations the home has been an important store of value for Americans. It's often a treasured asset -- a legacy that older Americans can pass down to their children and grandchildren. In other cases, it's a vital source of retirement income -- converted to cash either via an outright sale or rental, or thought the conversion of home equity to a reverse mortgage.

The problem: Your home is at risk. Every day, Americans lose their homes to a variety of hazards -- and not just to the obvious.

Fortunately, loss or severe damage to a personal residence lends itself well to insurance. But too many Americans don't adequately protect themselves against possible devastating losses -- losses they simply can't afford.

These mistakes are almost always avoidable -- if the homeowner is well advised. Here are some of the most common mistakes homeowners make when insuring their homes.

Not getting flood insurance
It cannot be stated plainly or forcefully enough: Standard homeowners insurance policies do not cover flood damage. Yet every time there's a major flood or hurricane in an area that is only rarely affected by flood, we see a huge number of families who have no financial protection against flood damage whatsoever.

The risk, for the individual homeowner, is huge. The average claim actually paid out for Hurricane Sandy, the storm that ravaged Florida and the Northeastern Seaboard in 2012, was $58,358. The average paid claim after Hurricane Katrina was $97,052 -- per policy affected.

But only 13% of Americans have a flood insurance policy, according to the Insurance Information Institute.

If you can't afford to lose this amount of money, you need flood insurance. For private homeowners, this is normally only available via the National Flood Insurance Program. This is a federal program that underwrites up to $250,000 for your home, and another $100,000 for its contents.

Is your home or contents more valuable? You probably should look at buying additional coverage. For more information, visit

Poor or non-existent household inventories
If you have items of value in the home, you should document those items -- before the disaster strikes. Otherwise, an insurer could challenge your claim. Fortunately, the insurance industry has provided a number of tools to make the inventory process easier. Among them: This interactive website makes it easy for you to upload digital photographs of your valuables, along with other identifying information, such as serial numbers and model numbers. You can even download a handy app for your iPhone or Android to make it even easier. If you have many valuable items, such as an art, antique, or musical instrument collection, you may need to speak with your agent about securing additional coverage for your belongings.

If you use your home for business purposes, you may also need to arrange for additional coverage.

Inventory information is confidential, and stored off site, so you don't have to worry that the same disaster that destroyed your home will also destroy your inventory documents.

Underestimating replacement cost
Remember -- market value and replacement costs can be very different. For example, with many older homes, local ordinances require you to rebuild according to new building codes, not the codes in force at the time the home was first constructed. For example, you may have to totally replace plumbing or wiring, use different materials, or put your whole house up on stilts when you rebuild, depending on local ordinances in your area. Look at your policy to see what code upgrades it will include. You may need to speak with your agent about adding ordinance or law coverage, and/or extended replacement coverage, which expands your policy limit by 25% to account for increased replacement costs.

Not insuring against local risks
Some areas have risks specific to the locality that are not covered under standard homeowners insurance policies. For example, sinkholes are a major problem in parts of Florida.