26 Home Insurance Myths That Will Cost You

It’s never a good feeling to think you have insurance coverage for something only to find out you’re on your own to pay for it. This certainly applies to homeowners insurance and your home. While your policy may pay for many types of losses, it’ll only do it under certain circumstances. Let’s go over 26 of the most common myths around home insurance, so you’re on the same page as the insurer.

Myth #1: Flood and Water Damage Are Covered by Home Insurance

While certain types of water damage caused by sudden water heater leaks and burst pipes are covered by homeowners insurance, flooding caused by a storm is not. You are only covered for a flood with a separate flood insurance policy. If the source of the flood was an earthquake, you’d be covered with a flood insurance policy, not an earthquake insurance policy, which is also separate from a home insurance policy.

Myth #2: Having a Dog Won’t Affect Home Insurance

Certain aggressive breeds of dogs (Rottweilers, Pit Bull Terriers, Bullmastiffs and more) are excluded in a home insurance policy and may cause an insurer to deny you coverage altogether. The reason is that homeowners insurance has a liability component to it, and if your dog bites a visitor, the medical bills are covered. The higher the risk that claims will be filed are enough reason for a company to reject you.

A dog that is not considered an aggressive type can also cause a home insurance company to deny or drop you due to a history of dog bite claims.

Myth #3: Home Insurance Only Covers Possessions in the Home

In addition to your possessions kept at a residence, a home insurance policy will also cover personal belongings in a storage facility and even items like a bicycle or laptop, if they are stolen while you’re not home or if stolen from your car. This “off-premises” or “off-property” coverage of a policy covers roughly 10% of your personal property coverage maximum. If you have $100,000 in property coverage, you’ll have $10,000 worth of coverage for items damaged, destroyed or stolen away from your home.

Myth #4: Home Insurance Companies Don’t Look at Your Credit Score

In California, Hawaii, Maryland, Massachusetts and Michigan homeowners insurers cannot use your credit score (also called FICO score) to determine an insurance score. However, in most states they do, and it can really impact the cost of coverage. You may be paying up to 70% more in premiums due to history of unpaid bills, large debts, multiple types of credit, and the length of your credit history. To improve your credit and lower your insurance costs, pay off debts that are in collections and pay down debt. Also, stop signing up for new credit cards, because too many credit lines also negatively affect your credit score.

Myth #5: My Neighbor’s Home Insurance Will Pay for Their Tree Falling on My Home

Unless the tree fell due to negligence, like a diseased tree not being removed earlier, your own home insurance policy will cover damages if your neighbor’s tree falls on your home. If it’s determined that the tree falling was your neighbor’s fault, their homeowners insurance will cover damages. Homeowners insurance will only cover tree removal if the tree hits a structure, however. So, if the tree falls in your yard or front lawn and doesn’t damage anything and is not a danger to anyone’s safety, you’re responsible for having the tree removed, unless the tree was in bad shape, at which point your neighbor would have to pay for cleanup.

If the tree fell due to an earthquake or a flood, you’d need separate policies for those perils, which are not covered by home insurance.

Myth #6: All Storms Are Covered By Homeowners Insurance

Floods and earthquakes are not covered by homeowners insurance. In some states, there is a separate wind deductible for windstorms, due to severe weather patterns in those regions.

Myth #7: A Home Business Doesn’t Affect Home Insurance

If the type of business you run out of your home violates the terms of the policy, you may get dropped by your home insurance company. Running an illegal operation, misrepresenting true skill sets, breaking zoning laws and using deceptive or unfair business practices can cause an insurer to drop your home coverage.

Myth #8: My Home Business Is Covered By My Homeowners Insurance Policy

You’ll need home-based business insurance to be covered for business property and liability related to the business. A standard home insurance policy may not cover your costs at all, and if they do, the limit is around $2,500. Without a home-based business rider or a commercial policy, you will not have business interruption coverage, so if your home becomes uninhabitable, causing your work to suffer, you can’t file a claim. Also, if you have employees, or even just one, you’re legally responsible to provide workers compensation coverage.

Myth #9: Filing a Home Insurance Claim Won’t Affect My Rate

Filing a claim will most certainly raise your insurance rate. If you file several claims, you may be denied coverage.

Myth #10: Everything in My Home Is Covered With Home Insurance

Your possessions are covered by home insurance up to personal property coverage limits (Part C), which is anywhere between 50 and 70% of your dwelling coverage (Part A). Also, you’re only covered for repair or replacement based on what peril caused the loss. Home insurance policies vary in terms of coverage, so it’s important to see which covered perils your policy includes and excludes. Common exclusions are flood and earthquake.

Nearly all home insurance policies cover storm and fire damage, up to limits but there may be a separate wind deductible if you live in a state prone to windstorms like tornadoes and hurricanes.

It’s also advised that people buy a separate rider for expensive belongings stored in the home, like jewelry, collectibles and gym equipment.

Myth #11: The Older the Home, the Cheaper the Homeowners Insurance Premiums

The opposite is true, in fact. Older homes and homes in need of repair are more expensive to insure. The electrical wiring in an old home is more of a fire risk than a newer home that is in line with new codes. The plumbing in an older home may be more prone to leaks and water damage. Unless the roof has been replaced, an older home will have an old roof that may be prone to leaks during a rain storm.

You may have a hard time securing a standard HO-3 home insurance policy on an old home, but you can find an insurer that offers an HO-8 policy, specifically designed for older homes. HO-8 policies cover fewer perils and have lower dwelling (Part A) coverage limits, making rebuilding cost a little more expensive for homeowners.

Myth #12: My Home Is Covered in the Event of a Landslide or Mudslide

Landslides, mudslides and mudflows are not covered with homeowners insurance, much like earthquakes and flooding are not. Earthquake insurance also does not cover landslides and mudslides, even though they are all earth movements. However, flood insurance covers mudflows. The best coverage for a home in risk of a landslide, mudslide or mudflows is to buy a difference in conditions (DIC) policy, which will cover them all, including earthquakes and floods.

Myth #13: My Home Is Covered for Earthquake Damage

Earthquakes are only covered with an earthquake insurance policy or a DIC policy that covers flooding, earthquakes and other types of earth movements that may damage your home.

Myth #14: Homeowners Insurance Covers Mold, Bed Bugs and Termites

Homeowners insurance will not cover infestations like bed bugs and termites. Add-on riders may be available for them, depending on the insurer. Mold may be covered if it was caused by a peril covered by your insurance, like a suddenly burst pipe or after roof damage caused by a storm. However, if it’s found that your mold issue resulted from damaged or badly maintained plumbing, you may not be covered at all. A termite infestation is also due to poor landscaping, keeping mulch too close to the home and leaky faucets. Even keeping stacked wood piles near the home may cause a termite infestation, especially if the environment is moist.

Myth #15: Maintenance Issues Don’t Affect Home Insurance

Poor maintenance of a home’s systems can lead to a claim denial if neglect is determined to be the cause of the damage. If an insurance adjuster sees problems like rusted pipes, old gutters or a roof that needs replacing, they may attribute them to the loss.

Myth #16: My Home Insurance Coverage Should Be the Market Value of the Home

A common mistake homemakers make when buying a home insurance policy is that they put down what their home is worth for Part A, dwelling coverage. Not only is it important to revisit Part A each year, but more than anything, it is imperative to put down the rebuilding cost of the home and all covered structures for that section. Your home may be worth $500,000 on the market but cost $300,000 to rebuild. Or the opposite may be true, because it may cost $600,000 to rebuild the home, shed and garage due to increases in the cost of materials and labor. When calculating what the rebuilding cost is for your home, make sure you’re taking all covered structures into account. Don’t assume that something is covered: check your policies specifics or contact an agent. Also, it may be a good idea to have a trusted contractor tell you what that figure is in today’s market.

Myth #17: A Vacant Home Is Covered With a Home Insurance Policy

If a home insurer finds out that your home is vacant for more than 30 days and you only have a standard homeowners insurance policy, you will not be covered for a claim and may even be at risk of getting dropped. Find out what the limit is for your policy: It could be 30 or 60 days and coverage may be reduced or not applied at all after your grace period.

A vacant home insurance policy can cover a home for as little as three months or as many as 12 months. If you foresee one of your properties being vacant for longer periods of time, it’s important to have the right coverage.

Myth #18: You Don’t Need To Buy Homeowners Insurance if You Don’t Have a Mortgage

What would you do if a sudden fire destroyed your home and all your possessions? With homeowners insurance, you may get the money necessary to rebuild your home and life. Otherwise, you’re paying for all of it without assistance. That’s why it’s important to have a homeowners insurance policy with the coverage right limits, even after your mortgage is paid off.

Myth #19: Having a Pool Won’t Raise Your Home Insurance Rate

A swimming pool on a property increases risk considerably, so it is called an “attractive nuisance.” Not only is there a higher risk of accidental drowning, a homeowner can be held liable, even for trespassers who may have accessed the pool without permission. Having secure fencing around a swimming pool may offset high insurance rates.

Myth #20: A Trampoline in the Yard Doesn’t Affect Homeowners Insurance

Like swimming pools, trampolines are also attractive nuisances that increase liability risks and end up making a home insurance policy more expensive. Again, having fencing around that trampoline, to deter trespassers, especially children can help lower an otherwise high insurance premium.

Myth #21: All Homeowners Insurance Policies Cost About the Same

You will get a different rate from each homeowners insurance company. One company may rate your neighborhood better or they may not look at your credit score as much. There may even be large discrepancies between one insurer’s premium over another’s. Unless you compare home insurance rates online, you won’t know who will offer you the best rate. Doing the footwork yourself will take up all your time.

Myth #22: Renovations Have Nothing To Do With Home Insurance

If you don’t take into consideration the extra cost of replacing renovations, especially an addition, you may be covered inadequately for dwelling coverage, which pays for rebuilding the home’s covered structures. If you buy new appliances or furniture, you’d need to make sure your personal property coverage is increased to cover those items.

Myth #23: Homeowners Insurance Will Cover the Cost of Replacing an Old Roof

If your old roof needs replacing, don’t look to homeowners insurance to cover the tab. A shingled roof is only good for 15 to 30 years and wear-and-tear is never covered by insurance.

You’re only covered for a roof replacement in full if a new roof was damaged or destroyed due to a covered peril.

Your home insurance will have a list of covered perils, which will include fire, hail and windstorms. You may have a separate wind deductible if you live in a state that experiences frequent tornadoes or hurricanes. An adjuster will come to the home to determine what shape the roof was in prior to the storm or fire before offering you a claim payment, if they offer one at all.

Myth #24: A Home Insurance Policy Will Pay the Full Cost of Losses

First you’ve got to ask yourself, do I have replacement cost coverage or actual value coverage. The difference between the two can be significant. Replacement cost coverage costs more because it’ll pay out what it would cost to buy a new replacement for damaged property. Actual cash value factors in depreciation and wear-and-tear.

Myth #25: Detached Structures Aren’t Covered in My Home Insurance Policy

Home insurance policies will cover “other structures,” like a detached garage, swimming pool or shed in Part B of a policy. It’s important to ask questions when speaking with an insurance agent to make sure your coverage is sufficient for those structures. Also, look for the limits for these structures on your home insurance policy to make sure you have enough coverage.

Myth #26 I’m Covered With Home Insurance for a Property I Rent Out

You are only covered for a rental property if you have a commercial landlord insurance policy. Otherwise, your claim will be denied. It’s a good idea to explain to your renters that the landlord policy will not cover their belongings in the event of a fire or storm. Only the structure and common areas (if there are any) will be covered by landlord insurance. If they supplied their own refrigerator, for instance, they should be advised to include it in their inventory. If you supplied it, add it to your policy.

Reviewing your home insurance policy before each renewal term is highly recommended, but only after you compare insurance rates to see if you’re getting the best coverage for the least amount of money. Homeowners who compare quotes regularly pay less than those who do not. It only takes a few minutes, and this insurance-comparison service is free.