Do you really understand what your policy covers?

Dated: 08/27/2019

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     Do you really understand what your policy covers?

Everyone should know what their home or auto policy covers. 
Sign up for a free policy review with one of Covered’s insurance experts.

Want to stop a conversation dead in its tracks? Ask your friends about their home or auto insurance. You’ll be greeted with blank stares and awkward silence, and will likely receive fewer invites to social gatherings in the future.

As confusing (and boring) as insurance is, it’s vital to know the basics and understand what your home or auto policy covers — otherwise, you might be setting yourself up for a world of hurt when something unexpected happens.

To help you wrap your head around the complexities of insurance, here are 4 simple truths that anyone with a home or auto policy should understand.

Insurance isn’t a warranty

You buy homeowner’s insurance to protect yourself against specific losses, such a fire, theft, weather damage, and other unexpected events. Unlike the warranty you buy for an expensive TV or a fancy refrigerator, insurance doesn’t cover normal wear and tear such as leaks, cracks, or routine maintenance.

If your water heater suddenly stops working, your insurance will not pay for a replacement. However, if your water heater is damaged by a specific event that you have coverage for (say, a burglary), your insurance company will pay for repairs or a replacement.

Insurance is not a maintenance plan or warranty. Keeping your home or vehicle in working order will always be up to you.

Your stuff is worth less than you think

Read your insurance policy carefully and make sure you understand if you have actual cash value coverage or replacement cost coverage.

Replacement cost coverage is much better, but you pay a price for it. This type of coverage pays the amount it will cost to replace damaged property (due to a covered cause of loss) with new comparable goods, despite the age or condition of the damaged property.

Let’s say you paid $500 for a state-of-the-art tube TV with a built-in DVD player. 10 years later, your TV is destroyed in a fire. If you have replacement cost coverage, your insurer will pay for the cost to buy the same TV today, new. You’ll get whatever amount it would cost to go out and buy the exact same TV today (good luck finding one that’s still for sale though).

If you have actual cash value coverage, your insurer will decide how much the tv was worth after factoring in 10 years of depreciation. They’ll likely reimburse you for way less than you originally paid since a tube TV with 10 years of use isn’t worth very much.

“Full coverage” isn’t really a thing.

When you’re shopping for home or auto insurance, you will never find a policy or package that is called “full coverage.” It simply doesn’t exist. While there are different levels of coverage you can buy when shopping for home or auto insurance, no single policy will provide protection against every possible scenario.

Coverage gaps are serious, and it’s important to at least consider purchasing an umbrella for additional coverage.

If you think you’re buying full coverage, you’re not. There are ALWAYS exclusions in an insurance policy. Read your policy carefully and make sure you understand what’s excluded.

Filing a bunch of claims can jack up your rates

If you file an excessive amount of claims, your insurance company can — and likely, will — raise your rates. They can even deem you too “risky,” and decline to renew your policy once you reach the end of your term.

I know what you’re thinking: “How can an insurance company penalize me for using a service I paid for?”

When it comes to the increased premium due to filing insurance claims, it’s not just the severity of the claim that drives rates, but also the frequency of filing claims. This is why it makes sense to avoid filing claims for minor auto or home issues.

If you want to be financially responsible and prepared for unexpected losses, you need to know how your insurance works and what it covers. No one ever wants to find themselves saying, “but I thought that was covered!” after their roof caves in.

Unsure of what’s covered in your home or auto policy? 

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The Hometown Group

Prescott, Arizona! Set at an elevation of 5,200' feet Enjoy the largest stand of ponderosa pine forests in the U.S., Prescott's near perfect weather provides an average temperature of 70 degrees, wit....

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