The Common Exclusions in Homeowner’s Insurance
American homeowners are often surprised to learn that earthquakes, flooding, and a sump pump malfunction are not covered by their homeowner insurance policy.
Earthquakes, unexpected deductibles, and flooding are just a few of the costs your homeowners policy may not cover. But if you are like most Americans, you probably do not know it.
According to a recent Home Insurance Literacy Survey, many homeowners are clueless about the ins and outs of their policies, which means they could easily end up paying a lot more than they expected after damage to their home.
Almost 50% of all homeowners in the survey did not know how much insurance coverage they had for the contents of their home, and 1 in 3 did not know how much their home was insured for. This a consumer knowledge gap and can lead to costly surprises.
I recommend that homeowners review their policies closely.
Below is a quick way to test your knowledge on 8 common homeowners insurance coverage gaps, as follows:
- Do you think your insurance policy would reimburse you for earthquake damage? The answer, according to the survey is almost always “No,” unless you purchased a separate earthquake policy. Almost 30% of survey respondents thought the answer was “Yes,” and another 30% did not know.
- If your sump pump backs up and your house floods as a result, will your homeowners insurance policy reimburse you for the damage? Despite the fact that most people believe the answer is “Yes,” it is not the case. That means homeowners could have to pay cash for costly repairs, unless they specifically added, and paid extra for, coverage for sump-pump failures.
- If new building codes mean you need to upgrade undamaged parts of your house, will your policy reimburse you for those costs? While nearly 2 in 3 survey respondents said “Yes,” the answer is “No.” In most cases, policies do not pay for upgrades, even those that are mandated by new laws, in undamaged parts of homes, unless you take out additional “Ordinance or Law” coverage.
- If you go away for the Winter and your pipes freeze and break, will your policy cover that damage? While policies remain valid even when you are on vacation or away for a long time, you have to take certain precautions to protect your home, or you might be liable for the costs. For example, if you fail to keep the home heated or pipes drained, on any damage that results from freezing may not be covered.
- Ok, now say you have auto and home insurance with the same company, and both get damaged in a tornado. Will you pay 1 deductible or 2 separate ones for each item? Chances are, you need to pay 2 deductibles, even if both the house and car are damaged by the same storm, although offer exceptions to this rule.
- If a fire destroys your home, will insurance pay the full cost to rebuild? The answer is most likely “No,” because most insurance policies cap their coverage, and take depreciation into account when calculating the value of personal possessions. That means homeowners could be insured for far less than they think. And 7 in 10 survey respondents said they thought their policy would pay the full cost to rebuild after a natural disaster.
- In the event of an earthquake, does the standard homeowners policy cover that damage? Earthquakes are not a covered peril under a standard homeowners policy. Depending on the insurance company and possibly the state, a homeowner can either add it as an endorsement to or policy, or purchase a separate earthquake policy. Earthquakes can cause damage in the form of landslides, avalanches, tsunamis, floods, fires, and more. But, earthquake insurance will only reimburse the homeowner for damage directly caused by an earthquake. There are separate riders and policies for mudslides/landslides and floods. Fires are usually covered under a standard homeowners policy.
- What is deductible? Deductible is the amount of money you will have to pay out of your pocket, before your insurance coverage will kick in. Sometimes it can be quite large.
Always ask questions of your insurance agent the coverage you intend to buy to protect your property, understand the conditions, coverage’s, exclusions and deductibles. It is your property, your responsibility.
The “stupid” question is the one you do not ask.