Homeowners insurance is an essential safety net for protecting your biggest investment. However, falling for common myths about home insurance could be costly in more ways than one. Separating myth from reality when it comes to home insurance could save you money, help ensure you have enough coverage, and provide peace of mind. Here are 10 homeowners insurance myths you might believe and the realities behind them.

1. Home Insurance Covers All Natural Disasters

Standard homeowners insurance pays out when your home’s structure is damaged by natural disasters including fire, wind, hail, lightning, and some types of water damage. It also covers repairs due to vandalism and theft, provides liability coverage if a visitor is injured on your property, pays to replace or repair belongings damaged by a covered event, and helps pay to live elsewhere during repairs. However, homeowners insurance generally doesn’t cover damage from floods, earthquakes, landslides, and sinkholes. If you live in a region where such threats are common, you may be able to purchase standalone insurance policies to protect your home from these risks.

2. Older Homes Are Cheaper to Insure

Unlike older cars, older homes generally cost more to insure than newer ones. Thanks to aging materials and outdated building codes, homes more than 50 years old are more prone to damage that can lead to insurance claims. Repairing or rebuilding an older home often costs more too. Bringing an old home up to current building codes can be expensive. Recreating the look of the original home might require specialized materials or contractors, adding to the cost.

3. You Don’t Need Homeowners Insurance Unless You Have a Mortgage

It’s true that mortgage lenders typically require borrowers to have home insurance; this protects the lender’s investment in the home. Depending on the risks in your region, lenders may require flood insurance or earthquake insurance, too. While home insurance isn’t legally required once you’ve paid off your mortgage, going without it can pose a major financial risk. Could you pay out of pocket to rebuild your home after a disaster? Could you afford the cost of a lawsuit if someone is injured in your home and sues? If not, maintaining home insurance is a smart financial move.

4. Homeowners Insurance Covers Damage From Wear and Tear

Don’t neglect home maintenance and expect your homeowners insurance to come to your financial rescue. Homeowners insurance won’t pay for repairs due to routine wear and tear or failing to maintain your home. For example, if a fire destroys your washer and dryer, home insurance typically pays to replace them. However, it won’t pay to replace a washer and dryer that are 30 years old and don’t work any longer because they’ve worn out. For that, consider purchasing a home warranty, which may pay to repair or replace appliances and systems that break down.

5. Homeowners Insurance Protects Your Home-Based Business

Home insurance generally won’t cover losses related to a home business, such as a business computer stolen from your home office or a client who sues you after being injured in your home. Check with your home insurance carrier to see what additional coverage you need. You may be able to buy a rider or endorsement to your homeowners insurance policy, purchase an insurance policy designed for home-based businesses, or get a standard business owner’s policy.

6. Homeowners Insurance Premiums Are Based on Your Home’s Market Value

Your home’s market value is how much it might sell for, which depends on things like location, lot size, housing supply, and interest rates. Your home insurance premiums are partly based on your home’s replacement cost value, or how much it would cost to completely rebuild your home after a major disaster. Replacement cost value is based on factors such as square footage, building materials, and labor costs. You or your insurance agent can calculate replacement cost based on the average costs of construction in your area or by getting your home appraised.

7. Homeowners Insurance Pays the Full Cost to Replace Your Personal Belongings

The personal possessions coverage in your homeowners insurance pays to replace or repair belongings damaged or stolen in a covered incident. But it won’t cover the full cost of replacement unless you choose a policy offering replacement cost value, which pays to replace your items with new ones of comparable quality. Policies that offer actual cash value coverage only reimburse you for the items’ current value, which may be much lower than the cost of replacement. In addition, most home insurance caps payments for furs, jewelry, silver, or computers at amounts less than their value. To protect these possessions, you’ll need to buy an endorsement that provides extra coverage.

8. Homeowners Insurance Always Pays the Full Cost of Rebuilding Your Home

The replacement cost value of your home may be accurate when you buy your home insurance policy, but inflation, labor shortages, changing building codes, and other factors can cause rebuilding costs to rise. After natural disasters, for instance, construction costs often soar due to high demand for repairs, and your dwelling coverage may not pay out enough to rebuild your home. Avoid that risk by purchasing insurance extras such as coverage that adjusts for inflation or pays to rebuild to current codes. Extended replacement coverage or guaranteed replacement coverage are other options that increase your coverage as needed to cover current construction costs.

9. Homeowners Insurance Covers All Structures on Your Property

Structures such as sheds, detached garages, and gazebos may be covered by homeowners insurance, but not always. Check your policy details to be sure. Even if other structures are included, coverage is typically about 10% of your total dwelling coverage. This may not be enough to rebuild some freestanding structures, such as an accessory dwelling unit (ADU). Depending on how you use your ADU, you may be able to add it to your homeowners insurance, or may need to buy landlord insurance, home-sharing liability insurance, or business insurance to protect yourself.

10. Your Credit Score Doesn’t Affect Your Home Insurance Premiums

Insurance carriers in most states can use your credit-based insurance score when setting premiums for your homeowners insurance. Although your credit-based insurance score isn’t the same as your regular credit score, both are calculated using data from your credit report, including your payment history, credit utilization, and more. Your credit-based insurance score is only one factor in the cost of homeowners insurance; your home’s location, claims history, coverage amount, and deductible matter too. Still, a higher credit-based insurance score can mean lower insurance premiums.

The Bottom Line

Homeowners insurance can be expensive, but going without it could be far more costly. Shopping around for home insurance can help you find the coverage you need at a price that fits your budget. You can get insurance quotes online or by contacting an agent or broker, being sure to compare the same type and amount of coverage.

Check your credit report and credit score before you start shopping. If it’s necessary, taking action to improve your credit score could help you save on homeowners insurance, giving you more money to put toward more enjoyable expenses.

Contact O1ne Mortgage for Your Mortgage Service Needs

At O1ne Mortgage, we understand the importance of protecting your home and ensuring you have the right coverage. If you have any questions about homeowners insurance or need assistance with your mortgage, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate the complexities of homeownership and find the best solutions for your needs.