All About Homeowner's Insurance
What's Not Covered
As mentioned, most homeowner's policies are amazingly comprehensive and cover things you'd never think would happen. A meteorite falling from the sky? You're covered. A fire that you caused when you used a faulty extension cord? Covered again.
That said, what policies typically don't cover is pretty important. Just about all of them exclude damage caused by the following:
Not taking care of your home properly
You can buy separate policies for flood and earthquake coverage, and if you live in an area prone to either, it's a good idea to do so. The extra $50 or so you'll pay annually for each is more than worth it. But there's no policy to cover what you, as a homeowner, are responsible for maintaining.
Other common exclusions include the following:
Sewer and septic backups. As mentioned in Preventing Sewer Problems and Causes of Septic Problems, sewer and septic backup coverage typically isn't part of a standard homeowner's policy and must be added. Some municipalities offer this coverage and will bill you as part of your monthly utilities bill.
Damage due to neglect.
General power failure.
Damage caused by war.
Rot, mold, or mildew.
Losses resulting from not protecting your property after a loss.
Insect and rodent infestations. Insurance companies regard infestations as home maintenance issues and typically don't cover pest-related damage. Many policies also contain exclusions for animal losses, meaning damage caused by birds, vermin, rodents, insects, or animals owned or kept by the policy owner. However, damage caused by a wild animal in your home might be covered, as long as the animal isn't a rodent.
Depending on where you live, things like wind and hail damage can also be excluded. Another interesting exclusion relates to changes to building codes. As an example, say your pipes freeze, and your local building code requires replacing them with a different material than what was originally used. The difference in cost between the old materials and the new product would be your responsibility.
Understanding Loss and Recovery
A Fine Mess
Unless your homeowner's policy specifies replacement-value or guaranteed replacement coverage, you probably only have actual cash value coverage. If you have a loss, the payoffs with these policies can be minimal — as little as pennies on the dollar.
Endorsements are add-ons to standard insurance policies that provide additional coverage for such things as jewelry, fine art, secondary residences, and so on. These provisions are also called riders. Floaters are separate policies that provide coverage on anything not specifically excluded by your policy.
What you stand to recover if you sustain a loss depends on the kind of policy you buy. Here, it's important to make sure you have enough coverage to both rebuild your home and replace your possessions.
For your home, you have the following options:
Replacement cost. This covers repairing or replacing damaged property with the same or similar materials.
Guaranteed or extended replacement cost. This is the highest level of protection. Guaranteed replacement cost coverage will repair or replace anything that's covered, no matter how much it costs. Extended replacement cost coverage will pay a set amount — typically 120 to 125 percent — above the policy limit.
Homeowner's policies typically provide coverage for possessions at between 50 to 70 percent of the amount of insurance that's on your home. If, for example, your home is insured for $200,000, you'd be covered for $100,000 to $140,000 of personal property.
Your belongings can be insured for the actual cash value, which will pay for replacing them minus a deduction for depreciation for age and/or use. A better option is a replacement cost policy, which reimburses you for exactly what it costs to replace things.
Many policies will exclude certain types of property, and most only offer limited coverage on certain types of property, such as fine art, jewelry, furs, and so on. Many homeowners take advantage of endorsements or floaters, and buy additional coverage for these items.
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Excerpted from The Complete Idiot's Guide to Common Household Disasters © 2005 by Paul Hayman and Sonia Weiss. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.
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