Insurance can be a tricky business to understand. There are thousands of insurance companies in the United States, and many are vying for your homeowner’s insurance policy.
Each company’s policy will offer basic coverage types and a host of different endorsements, which are additions and exclusions of coverage.
Because there are so many different types, it can be difficult to understand exactly what is and isn’t covered by your homeowner’s policy.
But the last thing you’d want to do with your largest investment is stick your head in the sand and assume your policy covers everything that can go wrong.
The best way to know exactly what’s covered is to review your policy with your insurance agent.
Below is a list of the top 10 losses (many water-related) your homeowner’s policy may not insure against depending on which state you live in, what type of policy you purchased, and what endorsements have been added.
Note that endorsements don’t only add coverage, but can restrict it as well.
No homeowner’s insurance policy covers you against a flood. Flood losses are insured exclusively by the government through FEMA and the National Flood Insurance Program, or NFIP. Insurance companies and agents can sell these policies for the NFIP, but are not the entities actually insuring the damage. If you have not specifically purchased a flood insurance policy, you are not covered. Many lenders will require you to have a flood policy if your home is subject to a flood based on maps created by the government agency. Check out more common flood insurance questions.
2. Continuous or Repeated leakage from plumbing, heating, or air conditioning
This coverage is not included in every homeowner’s policy. In fact, it must be added as an endorsement to your policy in many states. If your sink has a slow leak for three months and rots your wood cabinets, you will not be reimbursed for the cost of repairs unless your policy specifically covers this peril.
3. Sudden and Accidental discharge or overflow of water or steam from a plumbing, heating, or air conditioning system
Again, depending on which type of policy you purchased, this may not be covered. The good news is, unless you went for the bare bones policy, this is typically included.
4. Backup of sewers/drains
You don’t want to discover the hard way that you had no coverage for this unfortunate event. Take note, many policies only cover the damages if the backup occurs within a sewer or drain on your property, versus in a pipe or sewer down the street from your home.
5. Freezing of plumbing or heating system
Almost all but the lowest level of homeowner’s insurance policies will protect you against damages from this type of loss. However, almost every policy includes a condition requiring the owner to take certain necessary precautions to avoid such an event. For example, if you live in an area of the U.S. where temperatures can dip below freezing for longer periods of time, you must maintain adequate heat in your home to avoid the pipes freezing. If you left your home for a two-week vacation and turned the heat off, causing your pipes to freeze, you would have to pay for it out of your own pocket.
6. Mold, Fungi or Other Microbes
Mold damage is covered, but the coverage is typically restricted to mold on property that has been damaged by accidental or sudden discharge of water (if that is a covered cause of loss on your policy: see #3). An additional restriction usually requires the damage to be reported within thirty days of the covered loss if it is hidden or otherwise concealed, within a wall for example.
7. Cost of Testing, Remediation, and Living Expenses due to Mold, Fungi or Other Microbes
Insurance companies typically view this process as a different peril than #6 above. While many policies do not insure this cause of financial loss, they do offer an endorsement that may provide coverage in the amount of your policy limits. Living expenses refers to the cost of living somewhere other than your home while the testing and remediation are being completed.
8. Damage to Foundation/Slab
If you did not specifically discuss this coverage with your agent, you may not have it. Depending on where you live in the U.S., this may not affect your terribly. In areas with poor soil that can expand and contract regularly, foundation damage may be a big concern to you. Purchasing this coverage is not a “fix all.” Typically, only damage caused by a covered water leak (see #2, 3 and 4 above) is covered. Damage resulting from a flood would only be covered by a flood insurance policy obtained through FEMA or the NFIP.
9. Damage resulting from Construction Defects
While this is not covered by your homeowner’s policy, there is a silver lining to this cloud. Damage resulting from construction defects would be covered by the commercial general liability policy insuring the company that built your home. There is no guarantee you would be able to collect from the company, but that is where you would start the process of attempting to get reimbursed for damages.
Depending where you live in the U.S., you may scoff at the perceived need for earthquake insurance. In California, you’d be crazy not to have it. Be reminded Midwesterners, the largest fault line in the continent is the New Madrid Fault Line, which stretches south from Illinois to Arkansas. If there is a quake and it destroys your home, no coverage could mean a potential bankruptcy filing.
It can be tough to make time in your life to evaluate your insurance needs. However, this list demonstrates the necessity to do so. Saving money is important, but not at the risk of losing your biggest investment.
It’s also worth pointing out that adding the coverage discussed above will almost assuredly cost less than a daily Starbucks or your new iPhone.
Contact your local independent insurance agent or insurance company if you have specific questions about your coverage.
(photo: U.S. Geological Survey)