Is Your Home Insured For Everything You Think It Is?

There's no good time to discover that your home and contents insurance isn't as inclusive as you thought, but surely the absolute worst time to find out has to be when you make a claim. Don't be caught short: take the time to check out your home insurance policy and find out exactly what you're covered for.

Pest Damage

Coverage for pest damage seems like a logical inclusion for homeowner's insurance—but many homeowners find, to their dismay, that their policy doesn't cover any kind of pest damage at all. In fact, even though termites alone cause around $5 billion worth of damage to American properties annually, pest damage is not covered by most homeowner's insurance policies.

Depending on where you live, your home may be at risk of damage by one or more pests, such as termites, rodents, roaches, or bed bugs. The cost to repair pest damage can climb into the thousands, and for the most part, not a single penny is covered by insurance. Why? Two reasons: first, that most pest damage is preventable by keeping up with home maintenance and pest control. And second, insurance companies are in the business of assessing risk and making predictions—and pest damage is extremely hard to predict. Therefore, few insurers will provide coverage for any form of pest damage.

Natural Disasters

Natural disasters include things like wildfires, floods, earthquakes, and heavy winds. A standard homeowner's insurance policy covers some of these things, but not all of them. Your requirements for natural disaster insurance may depend on where you live and whether you own your home outright, as some mortgage lenders require that a home have one or more types of natural disaster coverage. So what's covered?

• Standard homeowner's insurance does cover wind and hail damage caused by heavy storms, including tornadoes. It's not dependent on where you live, but if you're in an area where there's a high risk of heavy winds, you might pay more for your insurance.

• Fire damage is covered by a standard policy, but again, you'll probably pay a higher premium if you're in a high-risk area.

• Flood insurance isn't included in a standard policy, but if you live in a high-risk flood area (as designated by FEMA) your mortgage lender will probably require you buy a flood rider.

• Similarly, earthquake damage isn't covered by a standard policy, and if you live in a high-risk area your lender may require you purchase an earthquake rider. Premiums for earthquake covered tend to be pricy.

Note that insurance doesn't cover preventable losses, or wear and tear. If your bathroom floods and destroys the hallway carpet, that's not the kind of flood damage that's covered, because it could have been prevented; and a piece for furniture is old and worn and needs replacing, that's wear and tear, and isn't covered either.

There are some exceptions: for example, if flooding occurred because the temperature dropped far enough that pipes froze and burst, that's a non-preventable hazard, and is covered by insurance.

Contents Insurance

Homeowner's insurance covered fittings and furnishings, personal belongings, and certain other items if they're stolen or lost, or if they're destroyed by an insured disaster like fire or tornado damage. If you have “off-premises” coverage, your possessions are also covered even if they're lost or stolen from you in another country.

However, there are coverage limits for certain kinds of items—like furs, guns, silverware, and jewelry—and that means they may not be covered for their full value. To completely cover such items it's necessary to purchase additional coverage for their appraised value.

Guaranteed Replacement Cost

Something that applies to coverage for both the home and its contents is guaranteed replacement cost versus actual cash value. This is an important concept: because of depreciation and/or marketplace fluctuations, the actual cash value of a home or item at the time it's damaged or destroyed isn't necessarily the same as the cost of replacing it. For example, a home that was completely destroyed by fire may end up costing more to rebuild than it was insured for, depending on the real estate market and costs of materials and labor. Similarly, items like electronics, which depreciate rapidly, are unlikely to be covered for their full replacement cost.

Sources

Floodsmart. “About the National Flood Insurance Program.” Accessed January 13, 2015.

Insurance Information Institute. “What is Covered by a Standard Homeowner's Policy?” Accessed January 13, 2015.

Insurance Quotes. “How Pests Affect Homeowner's Insurance Policies.” Accessed January 13, 2015.

Pest World. “Spotlight on Termites.” Accessed January 13, 2015.

Quotezone. “Compare Home Insurance.” Accessed January 13, 2015.

This Old House. “Homeowner's Insurance 101.” Accessed January 13, 2015.

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