5 Common Mistakes Homeowners Make with Coverage (And How to Avoid Them)

Home insurance seems straightforward—you pay a premium, and if something bad happens, insurance covers it. Right?

Not quite. Many homeowners unknowingly make critical mistakes with their coverage that can leave them under-protected when disaster strikes. At Pinoy General Insurance Services, we've seen these mistakes cost Cerritos homeowners tens of thousands of dollars in out-of-pocket expenses after claims.

The good news? These mistakes are entirely preventable. Here are the five most common home insurance errors and how you can avoid them.

Mistake #1: Insuring for Market Value Instead of Replacement Cost

The Problem

Your home's market value and replacement cost are usually very different numbers—and insuring for market value can leave you dangerously under-insured.

Market value includes the land your home sits on plus the structure. In Cerritos' competitive real estate market, a home might have a market value of $850,000.

Replacement cost is what it would actually cost to rebuild your home at today's construction prices—just the structure, not the land. That same home might have a replacement cost of $450,000.

Why This Is Dangerous

If you insure your home for its $850,000 market value when you really need $450,000 in dwelling coverage, you might think you have plenty of insurance. But here's what happens:

Scenario: Fire destroys your home. You can't sell the land to pay for rebuilding—you need actual dollars to reconstruct. If construction costs have risen to $500,000 but you only have $450,000 in coverage, you're personally coming up with that $50,000 gap.

Even worse, some homeowners under-insure dramatically, carrying only $300,000-350,000 in dwelling coverage on a home that would cost $450,000+ to rebuild. A total loss becomes a financial catastrophe.

The Solution

Work with your agent to calculate accurate replacement cost:

• Factor in square footage, home layout, and construction quality

• Account for custom features, upgrades, and finishes

• Use replacement cost estimator tools, not tax assessments or purchase price

• Include detached structures in your calculations

• Review and adjust coverage annually as construction costs change

Consider extended replacement cost coverage: This provides an additional 25-50% above your dwelling limit if reconstruction costs exceed your policy limit. It's inexpensive protection against rising construction costs.

Inflation guard endorsement: Automatically increases your dwelling coverage annually to keep pace with construction cost inflation. Most policies include this, but verify yours does.

Calculate your proper dwelling coverage with our help →

Mistake #2: Choosing Inadequate Liability Coverage

The Problem

Most homeowners policies include liability coverage starting at $100,000 to $300,000. Many homeowners stick with these minimums without considering whether they're adequate.

In California's lawsuit-friendly environment, liability claims can easily exceed these limits:

• Medical bills from serious injuries reach six figures quickly

• Legal defense costs tens of thousands even when you win

• Pain and suffering awards can dwarf medical expenses

• Judgment against you could threaten your home, savings, and future earnings

Real-World Example

A delivery driver slips on your walkway and breaks their hip. Medical expenses, surgery, and rehabilitation total $150,000. They sue for lost wages and pain and suffering. The case settles for $400,000.

If you have $300,000 in liability coverage, your insurance pays the policy limit and you're personally responsible for the remaining $100,000 plus any additional legal costs. Your savings, home equity, and potentially future wages are at risk.

The Solution

Carry liability limits that protect your assets:

• If you own a home in Cerritos, you likely have $300,000+ in home equity

• Add savings, retirement accounts, and other assets

• Your liability coverage should at least match your total net worth

Recommended minimums:

• Basic coverage: $500,000

• Better: $1,000,000

• Best: $1-2 million (via umbrella policy)

Consider an umbrella policy: Umbrella insurance provides $1-5 million in additional liability coverage over your home and auto policies. It's surprisingly affordable—often $200-400 per year for $1-2 million in coverage.

Increasing your liability limit from $300,000 to $500,000 typically adds just $15-30 per year to your premium. An umbrella policy for $1 million additional coverage costs about $200-300 annually. The protection is worth far more than the modest cost.

Mistake #3: Filing Small Claims Without Considering Long-Term Costs

The Problem

It's tempting to file an insurance claim for every loss—after all, you pay premiums for coverage. But filing frequent small claims can cost you much more in the long run.

How claims affect you:

• Each claim stays on your CLUE report for 5-7 years

• Multiple claims result in rate increases that persist for years

• Some carriers won't renew policies after 2-3 claims in a short period

• Future insurers see your claims history and may charge higher rates or decline coverage

Example: You file three claims over five years—a $2,000 water damage claim, a $1,500 theft claim, and a $3,000 windstorm claim. Your premium increases by 30% ($450/year) and stays elevated for five years. You pay an extra $2,250 in premiums—more than the claims themselves—plus you risk non-renewal or difficulty finding coverage.

When to File vs. When to Pay Out-of-Pocket

File claims for:

• Large losses you can't afford to cover yourself

• Losses significantly exceeding your deductible

• Liability claims (always report these to your insurer)

• Total or near-total losses

Consider paying out-of-pocket for:

• Losses barely exceeding your deductible

• Small losses you can afford to handle

• Preventable losses from lack of maintenance

• When you've recently filed other claims

Example decision: You have a $1,000 deductible and experience $1,800 in water damage from a leaking appliance. Insurance would pay $800 after your deductible. But if this is your second claim in three years, the rate increase could cost you $1,000+ over five years. Paying the $1,800 yourself preserves your claims-free discount and insurability.

The Solution

Call your agent BEFORE filing a claim. We'll help you evaluate:

• How much insurance would actually pay (loss amount minus deductible)

• Whether this claim could trigger rate increases

• Your claims history and how another claim might affect future rates

• Whether paying out-of-pocket makes financial sense

Maintain an emergency fund specifically for small home repairs. This gives you the flexibility to self-insure minor losses and reserve insurance for major disasters.

Focus on prevention: Maintain your home properly to avoid preventable claims. Regular maintenance is cheaper than claims and rate increases.

Mistake #4: Not Understanding What's Actually Covered (and Excluded)

The Problem

Many homeowners don't read their policy carefully and make dangerous assumptions about coverage. Then disaster strikes, and they discover critical exclusions.

Common Coverage Surprises

Flood damage is NEVER covered by standard home insurance:

• Flooding from storms, overflowing rivers, or storm surge requires separate flood insurance

• Water from burst pipes IS covered; water rising from the ground is NOT

• Many Cerritos homeowners assume they don't need flood insurance, but flooding can happen anywhere

Earthquake damage is excluded:

• Standard policies exclude earthquake damage

• California's seismic risk makes earthquake insurance worthy of consideration

• Available through California Earthquake Authority (CEA) or private carriers

Maintenance issues aren't covered:

• Slow leaks, mold from moisture buildup, termite damage, wear and tear

• Insurance covers sudden and accidental damage, not deterioration

• Example: Burst pipe flooding is covered; damage from a pipe that's been slowly leaking for months is not

Home business equipment and liability usually aren't covered:

• Standard homeowners policies provide very limited business coverage

• If you run a business from home, you need additional coverage

• One client lawsuit or theft of business equipment could leave you unprotected

High-value items have coverage limits:

• Standard policies limit coverage for jewelry, art, collectibles, etc.

• Common limits: $1,500 for jewelry, $2,500 for electronics

• If you own valuables exceeding these limits, you need scheduled personal property coverage

Certain dog breeds may not be covered:

• Some carriers exclude or limit coverage for certain dog breeds

• If your dog bites someone and your carrier excluded your breed, you could face personal liability

The Solution

Read your policy declarations and exclusions page. Yes, it's boring. But understanding what's excluded could save you tens of thousands.

Ask your agent specific questions:

• "Is flood damage covered?" (No, you need separate flood insurance)

• "Is earthquake damage covered?" (No, you need separate earthquake insurance)

• "What if my roof slowly leaks and causes damage?" (Not covered—maintenance issue)

• "I have $20,000 in jewelry—is that covered?" (Not fully—you need scheduled coverage)

• "I run a home business—am I covered?" (Very limited—you need business coverage)

Purchase necessary additional coverage:

• Flood insurance (even if you're not in a high-risk zone)

• Earthquake insurance (California Earthquake Authority or private carrier)

• Scheduled personal property endorsement for high-value items

• Home business endorsement or separate business policy

• Sewer backup and water backup coverage

Review your coverage with your agent annually to ensure it still matches your needs and you understand what's covered.

Get a complete coverage review →

Mistake #5: Not Updating Coverage When Life Changes

The Problem

Your life changes constantly—renovations, new purchases, lifestyle shifts—but many homeowners never update their insurance to reflect these changes. This creates dangerous coverage gaps.

Life Changes That Require Insurance Updates

Home renovations and additions:

• Kitchen remodel increases your home's replacement cost

• Room addition increases square footage and dwelling limit needed

• Pool installation adds liability exposure

• Solar panels need to be scheduled

Major purchases:

• New jewelry, artwork, or collectibles

• High-end electronics and equipment

• Musical instruments

• Expensive furniture

New home-based business:

• Even a small side business creates exposures

• Business equipment and liability need coverage

• Standard homeowners policies provide minimal business coverage

Changes in home value and replacement cost:

• Construction costs rise annually

• Your dwelling limit should increase to keep pace

• Some policies automatically adjust; others require manual updates

Getting a dog:

• Some breeds may require additional liability coverage

• Notify your insurer to ensure coverage

Installing safety features:

• Security systems qualify for discounts

• Fire suppression systems earn savings

• You need to inform your carrier to get credit

Changes in occupancy:

• Renting out your home requires different coverage

• Adult children moving in may affect coverage

• Home-sharing (Airbnb) requires special coverage

Real-World Example

You complete a $75,000 kitchen renovation, increasing your home's replacement cost from $400,000 to $475,000. You don't notify your insurance agent.

Three years later, fire destroys your home. Insurance pays the $400,000 policy limit, but reconstruction costs $490,000 (including inflation). You're $90,000 short—and you're using that beautiful new kitchen as a storage room for nostalgia because you can't afford to rebuild it.

If you'd updated your coverage after the renovation, you'd have had adequate dwelling limits and possibly extended replacement cost coverage to handle inflation.

The Solution

Notify your agent immediately when:

• You complete renovations or additions

• You purchase high-value items

• You start a home business

• You get a dog (especially certain breeds)

• You install new security or fire protection systems

• Your situation changes in any way that affects your home or risk exposure

Conduct annual policy reviews:

• Review your dwelling limit and ensure it reflects current replacement cost

• Verify your personal property coverage is adequate

• Check that liability limits still protect your assets

• Confirm all safety features and discounts are credited

• Update any information that's changed

Keep documentation:

• Photos of renovations and purchases

• Receipts for major home improvements

• Appraisals for high-value items

• Installation certificates for safety systems

Work with an agent who proactively reviews your coverage. At Pinoy General Insurance Services, we reach out annually to review your policy and ensure it still fits your needs. You shouldn't have to remember to call us—we call you.

Bonus Mistake: Choosing Insurance Based Only on Price

The Problem

While we all want to save money on insurance, choosing coverage based solely on the lowest premium is dangerous.

What low-cost policies might sacrifice:

• Lower coverage limits

• Higher deductibles

• More exclusions and limitations

• Poor claims service

• Financial instability of carrier

The Solution

Consider value, not just cost:

• Adequate coverage limits that actually protect you

• Reasonable deductibles you can afford to pay

• Carrier financial strength (A-rated companies)

• Claims service reputation

• Agent support and advice

The cheapest insurance is useless if it doesn't pay claims properly. A policy that costs $200 less per year but leaves you under-protected or provides terrible claims service is no bargain.

Work with an independent agent who can balance price and coverage. We shop multiple carriers to find you competitive pricing while ensuring you have proper protection.

How to Avoid These Mistakes

Step 1: Work with a Knowledgeable Local Agent

Independent agents like Pinoy General Insurance Services help you avoid these mistakes by:

• Calculating accurate replacement costs

• Recommending appropriate liability limits

• Advising on when to file claims vs. pay out-of-pocket

• Explaining coverage details and exclusions

• Proactively reviewing your policy as your life changes

Step 2: Review Your Policy Annually

Don't set-it-and-forget-it. Annual reviews ensure:

• Dwelling coverage keeps pace with construction costs

• Liability limits still protect your assets

• Life changes are reflected in your coverage

• You're getting all available discounts

• Your coverage still fits your needs

Step 3: Read and Understand Your Policy

Take time to read your declarations page and exclusions. Ask questions about anything unclear. Understanding your coverage prevents unpleasant surprises when you need to file a claim.

Step 4: Communicate Changes Promptly

Call your agent when life changes—renovations, purchases, new business, etc. A quick phone call ensures your coverage stays current.

Step 5: Invest in Adequate Protection

Don't under-insure to save a few dollars on premium. The modest cost of adequate coverage is insignificant compared to the financial devastation of being under-insured during a major loss.

Get Expert Guidance for Your Home Insurance

Don't make these common mistakes. Work with an experienced local agent who ensures you have the right coverage at the right price.

Pinoy General Insurance Services helps Cerritos homeowners:

✅ Calculate accurate replacement costs
✅ Choose appropriate liability limits
✅ Understand coverage details and exclusions
✅ Make smart claims decisions
✅ Keep coverage current as life changes

Ready to review your home insurance?

📞 Call us today: (562) 402 - 1737
📍 Visit our office: 17304 Norwalk Blvd, Cerritos, CA

Free policy review—no obligation. We'll identify any gaps in your coverage and ensure you're properly protected.

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• The Difference Between Liability and Property Insurance

• Complete Home Insurance Guide

Pinoy General Insurance Services is an independent insurance agency serving Cerritos homeowners with comprehensive coverage and expert guidance. We ensure you have the right protection to safeguard your home and financial security. Contact us today for your free policy review.