What Does Your Homeowner’s Insurance Cover?

Do you know what your homeowner's insurance covers? You might be surprised to find out what your homeowner's insurance does (or does not) cover.
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After Hurricane Katrina, many people were surprised to learn that basic homeowner’s insurance did not cover flood damage.

In the best-case scenario, Americans watching the aftermath of the terrible storm called up their insurance agent and reviewed their policy.

Unfortunately, it got put on the back burner for a lot of people—something to take care of “someday.”

Don’t let someday be the day that you find yourself lacking necessary coverage.

What Homeowner’s Insurance Typically Covers

Homeowner’s insurance is an incredible tool.

These policies can protect your home from mother nature and much more.

A typical homeowners insurance policy covers an exhaustive list of casualties, which may blind the homeowner to an equally important consideration – casualties that the policy doesn’t cover.

They typically cover losses that result from theft, fire damage, internal malfunctions (like a burst water pipe), and a host of environmental sources, such as wind damage or tree limbs falling on your house.

Homeowner’s insurance policies generally also provide coverage for less well-known casualties, such as losses incurred as a result of the theft of your credit cards, or even the contents of your safety deposit box at the bank.

Policies will also be very specific as to the contents that will be covered, including the physical structure of a home, your home furnishings, appliances, carpet and drapes, and personal effects like computer equipment and jewelry.

When you see such a long list of covered casualties, it’s very easy to assume that the policy has everything imaginable covered. But that’s a wrong assumption. It is almost certain that your homeowner’s insurance policy does not cover the two biggest threats of all – earthquakes and flooding.

What Homeowner’s Insurance DOESN’T Cover – Earthquakes, Floods, and Landslides

Here is a list of frequent losses that your basic homeowner’s insurance policy probably doesn’t cover—and what you should do about it:

Your homeowner’s insurance doesn’t cover flooding

Flood damage is one of the most common damages not covered under a plan. Just about no homeowner’s insurance policy pays for flood damage.

Even if you don’t live in a high-risk area, there is always a chance your home and belongings could be damaged by flooding.

If you ever experience a flood, it could damage most of your belongings and require thousands and thousands of dollars of repairs. If you want to get protection from flood damage, you’ll need to get additional insurance.

People don’t know that flooding is not covered under their homeowner’s insurance policies often because they live in an area that has not experienced flooding in many years. If you have a mortgage and your property is located in a flood zone, the mortgage lender will require you to carry flood insurance for the term of the loan.

However, it is still possible that you might not have flood insurance if your mortgage is paid or if the property should be determined to be in a flood zone after you took your mortgage.

It’s easy to see why you would avoid having flood insurance if you possibly could avoid it. Flood insurance is expensive. The actual premium that you will pay for the coverage will depend upon your specific location within the flood zone and how frequent flooding is in your area (it is possible to be in a flood zone even if the neighborhood has not experienced flooding in decades).

On an annual basis, the cost can run anywhere from a few hundred dollars per year to several thousand dollars. It will very likely be more expensive than your regular homeowner’s insurance policy – even though it covers only a single threat.

It doesn’t cover earthquakes either

Perhaps the biggest complication with earthquakes is the real potential for destroying your property. And since earthquakes can change the topography of an area, it’s even possible that your property will no longer be buildable in the aftermath of a particularly severe earthquake.

And once again, earthquakes are not covered by standard homeowners insurance policies. Unless you have a specific earthquake policy, you are not included.

Earthquake insurance can be even more expensive than flood insurance. Exactly how much the premiums are will depend upon how close you are to a known fault line, the activity of that fault line, and the history of earthquakes in the area. The structure of your home – more specifically, whether or not it is built to withstand an earthquake – will also affect your premium.

Landslides are generally not covered

If you live in an area that is prone to any of these issues, know that your homeowner’s insurance will generally not cover them.

Flood insurance is available through FEMA with the National Flood Insurance Program (find out how to file a FEMA claim).

It is possible to also bridge your coverage with a specific earthquake and landslide insurance if this is a possible hazard in your area.

Your best bet is to learn the geological risks before you buy a house—because the insurance companies certainly know what they are!

Why this can be an issue even if live in an area NOT prone to either threat

Most people will happily ignore the whole issue of flood or earthquake insurance if they are not located in an area that is prone to danger. That can be the worst situation of all.

Here’s why…

It’s possible that an area to experience an earthquake or flood even if it never has in the past. The Earth itself is not entirely stable and is subject to change due to weather or shifts in the Earth’s surface. In particular, when it comes to flooding, an area that has never experienced flooding could suddenly have it happen as a result of large-scale development in adjacent areas that are no longer available to take water runoff. This outcome is especially possible in the regions that are experiencing rapid growth.

Should either an earthquake or flood hit your home, your homeowner’s insurance will not cover the damage. It will not matter if the property has never been determined to be in a potential threat zone.

For this reason, you may want to give serious consideration to adding both types of coverage even if you are not in areas determined to be high risk. The good news is that obtaining either type of insurance is extremely inexpensive in an area that is not high risk. You may be able to take the policy for just a couple of hundred dollars a year. And that’s a small price to pay for a very large amount of coverage against an extremely destructive threat.

You should be able to add an earthquake policy through your current homeowner’s insurance company, and you can obtain flood insurance through the National Flood Insurance Program.

Other Damages Typically Not Covered by Homeowner’s Insurance

While there are many things these plans cover, there are dozens of different things they don’t. You must understand what’s not covered, those expenses could leave you with some massive bills.

Homeowner’s insurance comes with a great deal of fine print. Though most of us could think of many things we’d rather do than read our policy, it’s important to know what it covers BEFORE you need it.

Sadly, these common problems that can eat away at your house are not often covered.

Termites, mold, and pests

Another common misconception about homeowner’s insurance deals with creepy crawly bugs, such as termites, or other problems, such as mold growth..

Those little termites can cause a massive amount of damage. In fact, termites cause the most amount of damage every year.

In the United States, termites cost homeowners around $5 billion every year in repairs.

This is because the destruction termites and mold can wreak do not occur suddenly. Instead, the damage occurs over a lengthy time frame. Insurance companies consider this a maintenance issue, and, therefore the homeowner’s responsibility.

If you have an issue with termites, mold, or other pests, you will have to call a professional to get rid of them.

Keep that from happening by staying on top of your home maintenance.

Cars, boats, and other vehicles damaged or stolen on your property

While umbrella coverage may take care of the friend’s car you’re borrowing after a tree next to your driveway drops a branch through the windshield, you must have purchased that umbrella coverage ahead of time.

Don’t assume that your homeowner’s insurance is prepared to cover losses of visiting vehicles!

Talk to your insurance agent about how much umbrella insurance would be prudent for your situation.

Intentional damage

Insurance companies are suspicious of damage done to homes on purpose.

If the damage is committed by a resident of the house, it is an apparent conflict, and there will be no coverage.

Things can be a little tricky, even if the trickster is a non-resident.

Unfortunately, there is no way to protect yourself from this ahead of time, but it is good to know that this is not something your insurance company will pay for.

All of your valuables

Though homeowner’s insurance certainly will cover the valuables in your home in case of loss, there is generally a limit to how much the company will reimburse.

Know what your limits are!

If you have a great deal of computer equipment, all of your grandmother’s jewels, or an impressive art collection, take out extra insurance for them.

If you’re not sure if you need extra insurance, go ahead and have your valuables appraised.

It will be worth your peace of mind.

Insuring Your High-Value Items Within Your Home

You may be surprised to discover there are certain exclusions to the policy, including exclusions for certain damage (common for flood and wind damage), and sometimes exclusions for certain items you own.

These are usually limited to high-value items such as jewelry, artwork, memorabilia, and collectibles, musical instruments, electronics, etc.

When going over your policy, make a list of the exclusions that apply to you, and see if you can buy a rider on your homeowner’s insurance or renter’s insurance policy so you can cover these items.

It’s usually a good idea to do this as it only costs a few dollars annually and can save you thousands of dollars if the worst happens.

Determine Your Coverage Amounts

There are a couple of ways you can make sure you have enough insurance for your belongings.

Most insurance companies come up with an “average coverage amount” based on your location, cost of your home, number of rooms in your home, and other factors.

For example, an insurance company may cover the value of your home for $150,000 and the value of your belongings for $100,000.

The latter number is an estimate based on the size of the home, number of rooms, location, etc.

If your house and the contents were to be completely written off (think natural disaster or fire), then your insurance company would reimburse you for the amount of your home, plus the belongings—minus your deductible, of course. This is the easy way to make sure you have enough coverage.

If the total value of your belongings falls within the window set by the insurance company, then you are covered. But you will be surprised how often you do not have enough coverage.

If you need more coverage than your insurance company offers, then ask how much it would cost to increase your coverage. It is generally very affordable to raise your coverage levels.

When reading through your policy, also double-check to see which high-value items are covered, and which are not.

In addition, make sure your policy covers your items for full replacement value and not the item’s current value.

Document Your Belongings

Even though you may have enough coverage, you still need a record of your belongings. The best way to do this is to create a list.

There are two ways to do this: the short and the long way. The short way is grabbing a video camera and doing a walkthrough in your home, documenting your belongings as you go.

If you want a more complete inventory of your high-dollar items, then grab a pen and pencil or open a spreadsheet on your computer and copy down the make, model, serial number, purchase price, and the estimated value of the items.

You can also take a video or snapshot of the item to back up your information.

The long way to document everything you own involves making a complete home inventory.

We have instructions for a home inventory here.

Documenting your belongings seems like a daunting task, and it can be. Try to do it a room at a time, or at least document your high-dollar items, and go through the rest of your house later.

A great way to document your items for insurance (either a full inventory or just your expensive items) is with Know Your Stuff, a free service from the Insurance Information Institute.

They have a free software program (Mac, Windows, iPhone, Android) that will walk you room by room through your home so you can document everything you own, including adding images, serial numbers, etc.

You can also upload everything to their secure servers and access it from any computer (good to know in case yours was stolen).

Important: make sure you have an accessible copy of this information off-site. You can do this by leaving a copy with a family member, storing it in a safety deposit box, or uploading a copy to an online backup system such as DropBox, Microsoft One Drive, Google Drive, Google Docs, Evernote, iCloud, your email, etc.

Know Your Stuff also keeps your info in the cloud, so it can be accessed anywhere.

Add an Insurance Rider for Your Expensive Items

“Expensive” is a broad term that varies from person to company and company to company.

Reading through your insurance policy is the only way you will know what your insurance company covers.

Once you have a good idea of which items are covered, you will have a good idea of which items need a separate insurance rider. For example, when my wife and I got married, we added an insurance rider to our homeowner’s insurance policy to cover my wife’s engagement ring.

The coverage is relatively inexpensive, and we are covered for the appraised value if anything happens to it (loss, theft, damage, etc.).

I also have my computers covered under this policy, just in case something happens to them (this is super important to me, as I use my computers for a living).

It is a good idea to insure high-value items, including other jewelry, musical instruments, artwork, memorabilia and collectibles, and similar high-value items. You should include documentation for these items to prove ownership and help establish value.

This can include:

  • Receipts or proof of purchase
  • Appraisals
  • Photographs
  • Serial numbers
  • other information that proves value and ownership

Why You Need This Information

Homeowner’s and renter’s insurance covers many items, including theft, damage, etc.

But it’s up to the insured person to establish ownership of the items in question before the insurance company will cover the item. In the event of a total loss, the insurance company will have baselines to establish the value of the items you may have lost (assuming you have no proof of the contents of your home).

These vary from company to company but often work on the basis of the size and value of your home, your neighborhood, income, and other factors.

However, many insurance policies won’t cover high-value items based on these assumptions. You need to prove ownership, and often need to pay an additional insurance rider on your high-dollar items to ensure they are covered.

Know What You Have, And What You Don’t

This is an excellent time to point out an important fact about homeowners insurance policies – or any other type of insurance for that matter. Unless a threat is mentioned explicitly as a covered risk in your policy, it will not be covered.

People usually look at their homeowner’s insurance policy once – when they first buy it. After that, it won’t be opened again – unless there’s a need to file a claim. If the claim you hope to file isn’t listed as a covert risk, you will most likely be out of luck.

That being the case, today will be a perfect day to dust off your homeowner’s insurance policy and do a detailed review. You might even want to discuss it with a friend or relative who is in the insurance business, to get their opinion.

In most cases, every insurance carrier will provide the basic coverage we listed above.

But every carrier is going to have different exclusions and limits on their protection. You should always take the time to look at your policy and understand what your plan protects and what you could be paying for by yourself.

If you review your policy and don’t like the coverage, you can always get supplemental protection or change policies.

Your home is your biggest investment, you want to guarantee it will always be there.

Another type of Insurance coverage when you own a home that is something that you may want to look into is Mortgage Life Insurance. In the instance that the homeowner passes and leaves behind a mortgage, this will help the surviving spouse and/or children with the remaining mortgage cost, check out our post for more details.

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  1. William C. Doin says

    I have owned my home (Mortgage) for Twenty years, and pay insurance with my escrow.
    In New York, What is the amount(s) for my escrow RESERVE? Example You Need two monthly Escrow amounts . Does New York State require This ?
    I never heard of such A Law and I am receiving an escrow shortage for me to send them more Insurance money.

    Please Reply

    • Ryan says

      William, I recommend contacting your escrow company and ask them to send you their policy in writing, or point you to the law which requires the extra money. this way you know how much you are required to pay, and why.

  2. Jodi says

    It always takes such disasters before people realize that they are not covered for things like floods. this is something the insurance complanies should have to be up front about

    • Ryan says

      My insurance company was very up front about this when I purchased my home last month and asked for a homeowner’s insurance quote. Part of my loan approval also included verifying my home was not located in a flood plain (which is isn’t). I also believe I signed some documentation regarding flood insurance, but to be honest, I signed so many papers that day I can’t remember everything I signed… Anyway, in my personal experience, my insurance company has always been up front about flood insurance, but it could, of course, vary by each policy provider – which is just another reason to get multiple quotes!

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