What Does Homeowners Insurance Not Cover?

One of the most common mistakes that people make when buying homeowners insurance is to think that they are covered against all forms of loss.

Unfortunately, this is not the case, as there are instances where you may find that your home insurance policy does not provide you with coverage when you go to make a claim.

Usually, this occurs as a result of one or more of the following reasons:

• Dollar limits on your home insurance policy

• Specific exclusions in your home insurance policy

• Difficulty in valuing your property

In this article, we will look at each of these reasons and discuss why you might not be covered against certain uninsured losses with your existing homeowners insurance policy. This is something that you would normally do with your insurance agent or broker, as it will allow you to identify coverage gaps and then upgrade your policy if necessary or take steps to minimize your risk of suffering from such losses.

It should also be noted, that reviewing your insurance policies, regardless of whether they are for your home, health or automobile, is generally a good thing to do every 5-10 years or whenever something major happens in your life such as if you move to a new house, your income increases or if you have children.

Doing so will allow you to keep your coverage plans up to date. This means that you may be able to save money by getting rid of coverages which you do not need, and also protect yourself against future uninsured losses by identifying coverage gaps that you are exposed to.

If you would like to learn more about home insurance in general, and how to save money on your policy, then please see the following two videos:

Right, so let’s get started with the first of the three reasons why your homeowners insurance policy may not honor a claim that you make.

1) Dollar Limit Coverage

Your personal property is covered by section C of your homeowners insurance policy. In this section, you will find a list of the types of items that are covered and also the limits of that coverage.

For example, under a standard homeowners insurance policy, theft of jewelry will be covered up to $1000 and theft of silver will be covered up to $2500.

Because there are limits on the coverage for your personal property, it is therefore vitally important that you check whether these limits are enough to insure you for the full value of your items. If you feel that your coverage limits are too low because you have very valuable possessions, then it is recommended that you extend your limits by paying an extra premium charge for extended personal property insurance.

You should also think about whether the entire dollar limit coverage for all your personal possessions is going to be enough to insure all your items.

The best way to get a rough idea of how much personal property insurance you will need is by creating an inventory list, as described in the next section, and then estimating the value of all those items. Once you have this figure, you may want to extend that coverage by an additional 25-50% to allow for any extra items that you did not document, or other items you will buy in the future.

So to summarize, there are two things you need to be aware of. The first is to ensure that high value items which you own, such as jewelry or silverware, does not exceed the value of your current coverage limit for high value items. The second, is to ensure that your overall coverage limit is enough to insure the value of all your other items.

Personal Property Inventory List

Once you are aware of the coverage limits that your insurance policy provides you with, you should then create a personal property inventory list which you use to document all your personal possessions that you wish to insure.

This can be done quite simply by photographing each item you wish to include under your insurance, and if possible, including a receipt of purchase alongside that item. It is also recommended that you take photos of the exterior of your home, such as your roof, windows, doors and detached structures such as swimming pools and sheds for your buildings coverage.

The more items in your home that you are able to document in such a manner, the less problems you will have if you ever need to make a claim to your insurer.

The following video provides some more information on how to properly document property losses.

2) Exclusions In Your Home Insurance Policy

In almost all home insurance policies there are certain exclusions which do not allow for insurance coverage under the standard policy.

The first type of exclusion are those which are specifically mentioned on your homeowners insurance policy. For example, your policy may state that if your garage is used for business purposes then it will be excluded from coverage B other structures insurance.

When signing your homeowners policy agreement, make sure that you are clear on exactly what sort of exclusions come with that policy as you won’t be insured for such losses.

The amount of exclusions that will apply to your policy depend on the type of coverage that you take out, and in general, you will be choosing between broad form or special perils coverage. A basic home insurance coverage policy is also available, but this is not recommended to have as it exposes you to many uninsured losses.

Below we provide a brief description of each of these policies, and what sort of exclusions apply to them.

Broad Form Causes Of Loss Home Insurance (HO-B)

Broad form home insurance, also called broad form causes of loss or HO-B, is considered to be a medium level policy in that it provides you with a decent level of protection against a variety of named common risks at an affordable price.

These risks, also called “perils” in the insurance industry, which broad form insurance protects you against are:

• Fire/lightning
• Wind/hail
• Explosions
• Rioting
• Aircraft damage
• Damage by other vehicles
• Smoke
• Vandalism
• Theft
• Volcanic eruptions
• Falling objects
• Roof damage from snow/ice
• Accidental home water damage
• Weather damage to plumbing
• Some electrical damages

A broad form causes of loss policy will insure you against losses as a result of these named perils up to your policy limit. Any other type of loss that you suffer, you will not receive compensation for.

If you feel uncomfortable carrying this amount of risk with you, and therefore would like greater coverage, you can choose a special form coverage policy instead.

Special Form Open Perils Home Insurance (HO-C)

Special form home insurance coverage, also called open perils or HO-C, is considered to be the best type of coverage that you can get because it protects you against virtually all forms of loss.

There are however, certain losses that you will not be insured against as listed below:

• Work required to bring your home up to building / environmental regulations

• Earthquakes or other land movements

• Water damage from flooding

• Power failures

• Damage due to property neglect

• War

• Nuclear hazards

• Damage that you caused on purpose

• Action your government or local law enforcement authority takes against your home

• Loss to property due to bad construction, repair or maintenance

As you can see, there are still some exclusions that apply even to a special form causes of loss policy, but for most people, these exclusions will probably never apply to them.

So if you can afford to do so, it is recommended to get this policy as it greatly reduces your risk of suffering from future uninsured losses.

Omission Exclusions

If a specific cause of loss is not listed in your home insurance policy, then you will not receive coverage for it. This is known as an omission exclusion.

For example, if you spill paint on your expensive rug and paint spillage on rugs is not listed in your policy, then you won’t be covered against the loss. Omission exclusions will generally only apply to basic or broad form causes of loss policies.

3) Valuation Problems

Another reason why you may have difficulties in receiving the full amount of your insurance claim is due to property valuation problems.

Even if you are fully covered for a particular item and there is no dollar limit for it in your policy, if you are unable to prove the value of it, then the amount of compensation you will receive in your claim settlement could ultimately be lower than the actual value of the item in question.

Valuation problems are most common with old or rare items. For example, artwork, coins, stamps and jewelry. If possible, try to keep some form of proof of purchase if you insure such items as this will make it easier if you make a claim later on.

It can also help to have an independent valuation made on your property which you can then keep as evidence to support a claim amount.

Keeping photographic documentation as previously described is also strongly advised, as this will help your insurer to determine the true value of an item. For example, with electronic equipment, photographing the make, model and serial number of an item will make it easier to identify, value and replace.

Not Receiving Full Item Value

Finally, it is also worth remembering that the amount of compensation you receive in a claim settlement will largely depend on whether you have taken out actual cash value or replacement cost coverage.

With actual cash value insurance you will receive less than your item cost to buy if you make a claim to your insurer. This value is calculated on a depreciated market value, and usually works out to about 50% less than the items original cost.

With replacement cost insurance however, you will receive full compensation for what your lost, stolen or damaged item would cost to buy again from new. This is the best type of coverage to have as it minimizes your potential future uninsured losses.