72% of homeowners don’t understand essential home insurance coverage – Forbes Advisor

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Home insurance is crucial if you want to protect the investment you have made in your home and also protect your financial assets from potential lawsuits. But a new Forbes Advisor survey of 2,000 homeowners found most don’t know how home insurance works, although many said they were paying more for it than a year ago.

Most Homeowners Don’t Understand Liability Insurance

Most homeowners don’t know that home insurance covers more than just a home and possessions: 72% of homeowners don’t understand liability insurance. Yet liability insurance under a homeowners insurance policy is essential financial protection in the event of accidental injury and property damage you cause to others.

For example, if your child (or someone in your household) accidentally throws a soccer ball through your neighbor’s patio door, your liability insurance could pay for the damages. But just over half (51%) of homeowners said this issue would not be covered by home insurance and 21% were unsure.

Do you believe that home insurance covers repair bills if your child accidentally kicks a ball through your neighbor’s patio door?

Related: What does home insurance cover?

Misunderstanding Insurance for Dog Bite Incidents

The survey also asked owners if home insurance would cover medical expenses if they had a poodle that bit someone. The answer is yes, but many owners said no (39%) or didn’t know (18%).

Only 44% knew that home insurance can cover dog bites. (Some home insurance companies have a list of prohibited dog breeds, which means they won’t cover dog bite claims if you own a dog on that list. Dogs that commonly appear on breed lists prohibited include Pit Bulls, Rottweilers and Doberman Pinschers.)

Do you believe that home insurance covers another person’s medical expenses if your poodle has bitten someone?

Confusion about home insurance for vehicle damage

Owners are largely unaware (71%) that home insurance does not reimburse damage to vehicles. For example, if a house fire burns your car in the garage, home insurance will not cover the vehicle. Comprehensive car insurance, if you have it, would pay to repair or replace it. But 40% think home insurance would pay.

If you owned a car and it burned down in a fire, do you think your current home insurance would pay for the vehicle?

Many owners assume they have coverage they don’t

The types of issues covered by home insurance include fires, smoke, tornadoes, vandalism, falling objects, burst pipes, and other issues. But when asked to identify what is covered by homeowners insurance, the survey found that many homeowners misunderstand what is eligible for a claim:

  • 40% of homeowners mistakenly believe that earthquake damage is covered by a standard home insurance policy.
  • 36% of homeowners think home insurance covers flood damage, but it doesn’t.

These misunderstandings can be extremely costly. When homeowners mistakenly assume they are covered, they aren’t looking for the right insurance.

The survey found that some homeowners who live in areas affected by natural disasters may think they are covered when in fact they are not. This could be a very costly misunderstanding. For instance:

  • 33% of homeowners in the West think home insurance covers earthquakes.
  • 36% of Southeast homeowners believe home insurance covers flood waters.

Homeowners need a separate flood insurance policy for flood damage. And damage caused by earthquakes would require an earthquake insurance policy.

Homeowners who don’t know they already have coverage

On the other hand, there are misunderstandings about what is usually already included in a typical home insurance policy. If you don’t know you’re covered, you probably won’t make a claim:

  • A surprisingly high proportion (19%) of homeowners were unaware that home insurance covers damage caused by a kitchen fire, one of the most common causes of home fires.
  • Only 39% of homeowners knew that home insurance covers damage caused by wildfires. You do not need to take out a special forest fire insurance policy.
  • Only 59% knew that home insurance covers damage caused by tornadoes.

What do you think would be covered by a typical home insurance policy?

Many Homeowners Ignore Home Insurance Pricing

A big misconception among homeowners is that the value of their land (51%) and the market value of their home (46%) affect their home insurance rates. But the land and market value does not affect the cost of home insurance.

Home insurance rates are based on the cost of rebuilding the home, coverage limits, your personal claims history and other factors.

What factors do you think affect your home insurance rates?

Related: How Home Insurance Companies Estimate the Cost of Rebuilding Your Home

Nearly half of landlords have seen their rates increase recently

As rising gas and grocery prices get a lot of attention, many homeowners have probably noticed that their home insurance bills have gone up as well. Almost half (46%) of homeowners say their home insurance costs have increased since May 2021, the survey found.

Only 5% of homeowners say they’ve seen a drop in their home insurance premiums, and 38% say their premium hasn’t changed in the past year.

Of those who say their home insurance premiums have increased, the majority (55%) have seen an increase of up to $250 per year, and 30% have seen an increase of between $251 and $750 per year. And 9% of homeowners say their home insurance costs have increased by more than $1,000 per year, which would be a good time to research home insurance quotes for a new policy.

How much has your home insurance increased?

Most landlords aren’t looking for better rates

Despite the fact that many homeowners saw their home insurance premiums go up, only 23% shopped around for new home insurance. Of those who did, 63% said they did so because they were looking for lower fares.

Why did you buy new home insurance?

Are you looking for home insurance?

Compare the rates of participating carriers in your area via Policygenius.com

Survey methodology

This online survey of 2,000 US homeowners was commissioned by Forbes Advisor and conducted by market research firm OnePoll, in accordance with the Market Research Society’s Code of Conduct. Data was collected May 16-18, 2022. Margin of error is +/- 2.2 points with 95% confidence. This survey was overseen by the OnePoll research team, a member of the MRS and a member of the American Association for Public Opinion Research (AAPOR). For full survey methodology, including geographic and demographic sample sizes, contact pr@forberadvisor.com.

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Justin D. O'Neill