Following Hurricane Sandy in 2012, some New Jersey residents were surprised to learn that flooding wasn’t covered under their homeowners insurance, and that they would need special flood insurance. Until recently, flood insurance was available only through FEMA, the Federal Emergency Management Agency. In fact, it’s often after a catastrophic event, when filing claims and having them rejected as not covered or reduced to amounts below what repairs and replacements will cost, that insureds realize the limitations of their homeowners policy, according to Rob Conner, a personal claims specialist with Mints Insurance in Millville, an independent insurance agency.
The purpose of homeowners insurance is to protect your home and its contents from perils (weather events, theft, fire, or vandalism) and your financial assets from liability claims (lawsuits seeking medical expenses and other monetary damages for accidental bodily injury to another individual and/or damage to that person’s property). Up to a certain point, the scope and dollar value of coverage in a standard homeowners policy can be sufficient. But “in worst-case scenarios where the damage is caused by a peril that is excluded from coverage, or the costs to replace/repair are well above what the policy limits allow, or much higher deductibles are required for certain types of damage, standard coverage may fall short,” said Conner.
Basic Homeowners Insurance: Typical Exclusions and Limitations
The specific damages and losses a basic homeowners insurance policy covers or excludes and maximum payouts vary from company to company, he noted. They also vary among policies written by the same company. Some common exclusions and limitations include:
- Floods/tidal surges, sewer back-ups/sump pump overflows and water seepage through the foundation, and any mold, fungus, or rot that stems from these scenarios.
- Earth movement such as earthquakes, shockwaves, sinkholes, landslides and mudslides/mudflows.
- Damages from or infestation of termites, birds, rodents, and other pests.
- Wear and tear, rotting, corrosion/rust.
- Pollution/contamination.
- Damages resulting from neglect/failure to make repairs.
- Intentional loss/damages caused by the owner.
- Governmental action such as the destruction, confiscation, or seizure of covered property by any governmental or public authority.
- War.
- Nuclear hazard.
- Home-based business. A simple home office might require only an endorsement to a home insurance policy, but generally a separate business insurance policy is required.
- Freezing pipes may be excluded unless water was shut off/pipes drained or the building was heated.
- Hurricane and wind deductibles. All homeowners policies include an all-peril deductible — a set amount for which you are responsible before coverage kicks in. But some policies include a separate, higher hurricane, wind, and/or hail deductible that ranges from 2% to 5% of the value of your home.
Filling the Gaps: Policy Endorsements/Riders & Other Types of Insurance
Exclusions and limitations in your current policy don’t necessarily mean you can’t insure against these perils or get higher coverage amounts. You may be able to purchase “riders” or “endorsements” — add-ons to your existing policy that extend or modify coverage. Some common ones include:
- Sump pump overflow/sewer backup. Most policies offer an endorsement that pays the cost of cleanup and damages caused by these types of water backup. They also provide loss-of-use coverage in case the home is uninhabitable while cleanup and repair is ongoing.
- Scheduled personal property. An endorsement that covers high-value objects such as jewelry, furs, fine arts, stamp/coin collections, guns, computers, antiques, and other items that could exceed the limits in your homeowners policy.
- Replacement cost. Most basic homeowners policies offer the default coverage of actual cash value for personal property — the cost of a brand new item minus depreciation. You can pay extra for replacement cost coverage, which does not subtract for depreciation.
- Ordinance/law endorsement. If local building codes or ordinances for rebuilding part or all of your home have changed, an ordinance/law endorsement rider will cover extra costs of rebuilding the home in compliance with local building codes. A standard home insurance policy pays only for what you originally insured.
- Oil tank liability. Most homeowners policies exclude pollution liability caused by leaking oil tanks. Some offer the option to purchase $100,000 of pollution liability coverage for an additional premium. In many cases, if a policyholder declines, the insurer will not offer it again.
In some cases, you will need to buy a separate type of insurance. For example: only flood insurance covers damages related to flooding. And an umbrella liability insurance policy increases your liability coverage for bodily injury to others or damage to their property above the limits available in any of your “primary” policies, including homeowners, auto, and boat insurance.
Consult an Independent Insurance Agent
The time to learn what damages and losses your homeowners policy won’t cover and/or the limitations of what it will cover are before you need it. Independent insurance agents like Conner can review your policy with you, help you assess the types and amounts of protection you need, and present options for filling gaps in your coverage. They work with multiple insurers (14 for Conner’s agency) which gives them insight into coverage terms and variations in rate-setting criteria and helps simplify the insurance shopping process, e.g., applicants need to fill out only one form.
Article Reviewed by | Paul Martin