When Disaster Strikes Your Home, Will You Be Covered?
By Ric Edelman
Answer the question posed in the above headline, and answer it now, before disaster strikes. Hurricanes, tornadoes, and forest fires have caused billions of dollars in damage to homeowners’ and renters’ properties. Do you know what your insurance policy will cover?
Say your tree crashes into a neighbor’s house. Does your policy cover the damage? If the wind blows a tree through your roof, are you protected against water damage caused by the ensuing rain? What if a river floods your home, your sewer backs up, or a forest fire destroys your house?
In each scenario, you must determine if your current insurance policy will cover the losses, and if so, to what extent. Find your policy and read the declaration page. Review the exclusion section to see what is not covered. It might be a good idea to check all this with your insurance agent.
When reviewing your coverage, consider how much is needed to replace your dwelling. Today, many policies offer only “extended replacement” policies. That means the insurance company will only replace the house up to the maximum amount of your coverage. That’s a problem if you bought your house 10 years ago for $300,000, because your policy, which you bought at the same time, probably referenced that dollar figure. But rising real estate prices means your house is likely worth twice that amount -- and thus your policy no longer is enough to let you rebuild your home after a disaster. This is especially true if you have made improvements to your home but have not told your agent.
Most policies cover losses caused by fire, regardless of the reason, including a forest fire, electrical fire, or arson (unless you did it!). Your house and its contents probably are also covered against water damage from an overflowing bath tub, washing machine, water heater, dishwasher, or frozen pipe. But your house is not covered against flood damage unless you purchase flood insurance from the federal government. Call the feds at 1-800-323-8603.
There’s a big difference between flood and water damage. Water that does damage before it comes in contact with the ground is “water damage” and usually covered. Water that touches the earth before coming in contact with what you own is “flood damage” and is usually not covered.
For example, it’s considered a flood if your house and its contents are damaged because ground water from a heavy rain seeps in. However, damage from a heavy rain that leaks in through walls and ceilings is often covered. Note that damage from a sewer back-up usually is not covered, so if this worries you, buy special coverage.
Insurance companies hate water damage claims, and filing one could cause your policy to be cancelled. Also, it could give you problems when selling your home, for prospective buyers might not be able to get coverage. Insurance companies share information about houses via CLUE, the Comprehensive Loss Underwriting Exchange, which keeps records of insurance claims. Even one water damage claim could cause your house to be labeled “uninsurable” for up to five years.
Terrorism may be covered, but acts of war are not. Would your insurance company regard a terrorist event to be an act of war?
Earthquake coverage is not part of a standard policy, so you must buy special coverage. These clauses feature large deductibles and hefty premiums. Ditto for wind and hail coverage for those who live in hurricane areas.
Although your policy probably provides “replacement cost” coverage for personal items, that works only if you can prove what you owned. Make a video of your personal items and keep receipts showing what you paid. Copy the video and keep it and the receipts off-site or in a home safe rated at least UL-150.
Most policies limit coverage for such personal items as jewelry, electronic equipment, recreation equipment, and collections. Get such items appraised, and add a rider to your policy to cover them.
Your homeowner’s policy does provide medical coverage, but only for guests, not family members.