Insurance companies fill the airwaves with advertisements that stress their dependability…but they fill their policies with loopholes and legalese that create gaps in customers’ coverage. Even worse: Many homeowners don’t learn about these policy problems until after disaster strikes. What to look for now…
Any damage from an uncovered risk might mean all damage is not covered. Here’s some insurance math policyholders need to know about…
1 covered cause + 1 uncovered cause = 0 coverage.
Example: A hurricane hits, and your home suffers flood damage and wind damage. Flood damage is not covered by the typical homeowners insurance policy, but wind damage is. Is the home’s damage covered?
In years past, the answer usually was yes, at least in part. Where the loss can be separated, the loss caused by a covered event is covered. But now an anti-concurrent causation clause bars coverage where the causes both operate to cause indivisible damage.
What to do: Review the section of your policy related to excluded events—though the legal language can be challenging to interpret. If an insurer attempts to use an anti-concurrent clause to avoid paying your claim, contact an attorney who specializes in insurance claims. Some policyholders have successfully challenged denials based on anti-concurrent causation in court.
Flood damage is almost always excluded—even if the flooding is from non-natural sources. If your home is in a government-designated high-risk flood zone, you probably already know that your homeowners insurance doesn’t cover flood damage. Instead, your mortgage lender likely requires you to pay for a separate flood insurance policy. But surprisingly, that doesn’t mean everyone whose home is at risk for flood damage has flood insurance—approximately 25% of flood damage occurs outside of designated high-risk flood zones, much of it from overflowing creeks and rivers far from coastal areas. And some flood damage isn’t caused by any nearby body of water—homeowners insurance typically excludes flooding caused by broken sewer lines and sump pumps.
What to do: Visit the website of the National Flood Insurance Program (FloodSmart.gov) to determine your flood risk and how much it would cost to obtain coverage. Rates can range from a few hundred dollars per year to many thousands. Ask your homeowners insurance provider how much it would cost to add a sump pump and water-backup endorsement to your policy—the policyholder often can pay an additional fee to cover these specific types of flooding. Also: Consider moving valuables to higher levels in your home…and using moisture- and mold-resistant building materials if you finish your basement.
Earthquake damage is almost never covered—which could put you at risk even if you don’t live near the Pacific Coast’s famous fault lines. If you live near the West Coast, you probably already know that homeowners policies typically exclude earthquake damage. But the West Coast isn’t the only part of the US where earthquakes can occur. Though uncommon, major seismic activity also is possible near where Missouri, Arkansas, Illinois, Kentucky and Tennessee meet…in Hawaii…and in coastal South Carolina, among other locations. What’s more, policies don’t only exclude earthquakes—they usually won’t cover damage from any “earth movement,” which means homeowners often aren’t insured for landslide and sinkhole damage, either.
What to do: Investigate the price of earthquake and/or sinkhole insurance if you live in an area where those are feasible. Unfortunately, earthquake coverage often is very expensive, even under public insurance programs such as the California Earthquake Authority—that’s why about 85% of California homes are not covered. Also: Explore “seismic retrofitting” options that could reduce the damage your home sustains in a quake. If sinkholes are a concern in your area, ask your homeowners insurance provider if it offers a sinkhole endorsement for an added fee.
An unnoticed leak could become an uncovered loss. Insurance policies sometimes cover water damage from burst pipes—but not from dripping pipes. That distinction is unlikely to be clearly spelled out—policies simply say that the damage must be “sudden.” It’s one thing for insurers to not cover damage from a slow drip if that drip was obvious but the homeowner failed to fix it promptly. But insurance companies may deny claims even when a slow drip was completely hidden and undetected inside a wall or ceiling until significant damage was done.
What to do: Purchase a leak- or moisture-detection device—these are available on Amazon or in home centers typically for $20 to $200 apiece. They monitor the flow of water through your pipes and alert you to dripping pipes or high moisture levels in out-of-the-way parts of your home before there’s substantial water damage or mold growth. Your insurance company might even offer a discount for installing one of these devices.
Your roof’s coverage could have holes. An increasing percentage of policies cover only the depreciated value of a damaged roof. Example: If a roof with an anticipated life of 30 years is destroyed when it is 15 years old, the homeowner might receive only half the roof’s replacement cost, less the policy deductible. Limited roof coverage like this is especially common in parts of the Midwest that are prone to strong winds and hail, but it’s no longer rare elsewhere in the US.
What to do: Review your policy to see how well your roof is covered. Consider shopping around for a policy that provides better roof coverage if yours offers only depreciated value.
Your insurance might not pay for repairs that the government requires. If your home incurs substantial damage, your local government might require you to have the repairs done in a way that meets current building codes. Problem: If the home predates those codes, your insurance provider might refuse to pay for the necessary upgrades. Some policies cap upgrade coverage, while others exclude upgrade costs entirely. That could leave you with massive out-of-pocket costs if, for example, your electrical system must be upgraded.
What to do: Review your policy to see how much, if any, “ordinance or law” coverage is provided, especially if the home is many decades old. A policy that caps this coverage is better than one that excludes it entirely. Contact your insurer to see how much it would cost to add an “ordinance or law” endorsement that would expand this coverage.
Cosmetic damage probably isn’t covered…and in fact, covered repairs sometimes create cosmetic issues. A tree falls and grazes a home, leaving an ugly line down the siding but not knocking any piece of siding out of place…or a heavy weight falls on a floor, cracking several pieces of expensive imported tile. There’s a good chance that these incidents are not covered—many policies now exclude or severely limit coverage for damage that’s only cosmetic.
What’s more, many policies specify that the insurer will not pay to repair or replace undamaged property due to a mismatch between undamaged and new material. So when the insurance company must pay to replace siding, roofing or flooring, it might pay only the cost of replacing the pieces that were broken—even if those new pieces look horribly out of place surrounded by older, sun-faded materials.
What to do: Review your policy in search of any mention of “cosmetic damage” and/or “mismatch” to determine how well this is covered. Your insurer might offer an enhancement that can improve your policy’s coverage of cosmetic damage—in exchange for an added fee, of course.
A dog bite might come back to bite you. Homeowners often assume that their insurance will provide liability protection if their dog bites a houseguest. But with the average payout from a dog-bite claim now above $50,000, insurers are anxious to find ways to limit this risk. In the past, it was common for insurers to refuse to cover dogs that have a history of biting…but many insurers now also won’t cover breeds that are considered especially aggressive, including Dobermans, pit bulls, rottweilers, chow chows and more. Mutts that include one or more banned breeds frequently are banned as well. Some policyholders are unaware of these breed restrictions when they adopt dogs, as many people did during the pandemic.
What to do: If you have a pet, contact your insurance company to confirm that it’s aware you own this pet and that your liability protection includes it. If your insurer won’t cover your dog’s breed, shop around—not all carriers ban by breed.
Your policy probably is capped too low to cover a complete rebuild. Approximately 60% of US homes are insured by policies with caps lower than their actual rebuild costs, according to a 2018 estimate by the real estate analytics firm CoreLogic. The average coverage shortfall is 20%—that’s a massive $50,000 coverage gap for a $250,000 home. This shortfall almost certainly has grown worse in recent years, as inflation has significantly increased home-building costs. In decades past, policies typically guaranteed that they would cover rebuild expenses, but such guarantees have become rare.
Many homeowners assume that the replacement value calculated by their insurance company is adequate—after all, insurers want to sell their customers as much coverage as possible. Reality: Insurers know that consumers usually pick the policy that has the lowest premiums, which creates an incentive for insurers to underestimate rebuild costs. An insurer would rather sign up a customer for $200,000 worth of coverage than scare that customer away by recommending $250,000 of coverage.
What to do: Use a web tool that provides an unbiased estimate of home-rebuild costs, such as HMFacts (HMFacts.com). Then contact your insurer and discuss increasing your insurance coverage for that amount.
