Brown Insurance Group Blog

All You Ever Wanted to Know About Insurance


Your home is likely the biggest purchase you’ll ever make, so it only makes sense to protect your investment. And since homes are big things and big things are complicated, your homeowners policy can also be confusing. Many consumers make a lot of assumptions about what’s covered under their homeowners policy, and that can lead to these costly myths:

MYTH #1: Insuring your home for the market value, or the amount you paid for it.

FACT: If you think you're doing your wallet a favor by basing your coverage on the current market value of your house, think again. Replacement cost and market value are two very different things, and it’s important to understand both when you’re a homeowner. Your home’s market value is the amount for which it would sell in the current marketplace in its current condition. Market value fluctuates and can be difficult to predict, but it’s calculated based on your home’s location, internal and external characteristics, and supply and demand. Your home’s market value might not cover the cost of rebuilding if your house is destroyed by fire or other disaster. Materials and labor may cost more now than when it was built, and special features could be more expensive to replace.

On the other hand, replacement cost coverage insures your home for the cost to repair damage to your home or rebuild it completely at equal quality — at current prices. Replacement cost calculations can vary depending on the home insurance company you’re working with, but it typically covers plans and permits, labor and materials, and fees and taxes. Land value is not included in replacement value, as it does not factor into the cost to rebuild a structure. Keep in mind that costs for these things at the time of your appraisal will affect your replacement cost value. If supply and demand change, those costs may have increased significantly at the time you actually need them.

Although insuring your home for its replacement cost rather than its market value may seem to be more expensive in the short-term, you will be adequately prepared if your home is damaged or destroyed.

MYTH #2: The medical payment portion of my homeowners insurance will cover injuries to my family and me.

FACT: MedPay, a common feature of standard home insurance policies, is there to protect you if someone other than you or your family (a neighbor, friend, etc.) gets hurt on your property and they don’t want to sue you. MedPay will typically cover up to $1,000 for each covered claim to someone outside your family. If you or someone in your family gets hurt on your own property, you would have to look to you health insurance company for help covering your medical costs.

MYTH #3: "I've got insurance, therefore everything I have is covered."

FACT: There are a lot of ways in which this is not true. Insurers place limits on coverage for certain possessions, such as jewelry, furs, guns and rare collections. You would likely need to purchase additional insurance in the form of an endorsement, also called a "rider" for those items. Most insurers will offer an optional endorsement so you can insure whatever valuable personal property you may have for its full value should it be lost or stolen.

MYTH #4: Standard homeowners insurance covers flood damage

Flood damage to your home and personal property is NOT covered by standard homeowners insurance policies. The only time your homeowners insurance policy may cover flood damage is if the flood occurred accidentally at the hands of the owner or a guest of the house. For example, if your bathtub accidentally overflows, your sustained damages would be covered by your policy. However, if your basement floods due to torrential downpours then your homeowners insurance policy does not cover any of the resulting damages.

Most insurance companies can offer you a separate flood insurance policy which is underwritten by the National Flood Insurance Program (NFIP) and can be purchased by homeowners, renters, and condo owners.

Flood Insurance typically covers the cost to replace your home, however it only covers the actual cash value for coverage of your possessions. Actual cash value refers to the value of the possessions to replace them minus the depreciation value.

Understanding your insurance coverage is a vital step toward responsible home-ownership. If you’re unsure of what your policy covers, please contact us at 219-972-6060 and we would be happy to review your home insurance policy with you to ensure that you are adequately protected.