Five Losses Not Covered by Your Homeowner’s Insurance

Posted on March 18, 2008

The National Association of Insurance Commissioners (NAIC) reports that millions of homeowners incorrectly assume that homeowner’s insurance covers nearly all property losses that occur in and around the home. Here are some of the most common misconceptions about what is covered by homeowners insurance.

1) Auto and boat. Some 68 percent of homeowners surveyed by the NAIC believed that damage to an automobile, motorcycle, or boat would be covered by their homeowners insurance, if damage occurred in their garage or on their property. This is incorrect. If an earthquake causes your garage to collapse on your car, or if a tree falls and crushes a boat, your losses to your vehicles would not be covered by your homeowner’s insurance. Separate insurance is required for vehicles and boats.

2) Earthquake destruction. Thirty-five percent of homeowners believe that earthquake damage is covered by their homeowners insurance. They are wrong. Earthquake insurance is available, but only as a separate insurance policy with the price varying from region to region, depending on the likelihood of an earthquake occurring. The U.S. Geological Survey states that earthquakes have struck 39 states since 1900. Alaska, Hawaii, California, and other western states lead the nation in the frequency and severity of earthquakes, but devastating earthquakes have hit the Mississippi Valley, the Northeast, and the Southeast as well. The Federal Emergency Management Agency states that direct losses from earthquakes total $4.4 billion a year. Because of the high costs and frequency of earthquakes in California, property insurers stopped offering earthquake insurance after the Northridge earthquake of 1994. The California legislature stepped in and mandated that any company offering property insurance in the state had to participate in a state-backed earthquake insurance pool for homeowners.

3) Mold. Severe earthquakes are big, loud, and produce violent motion. Another danger to homes is small, silent, and still. Hidden in the darkness behind drywall, cabinetry, and tile grow colonies of mold. Mold particles can become airborne and make people ill. Removing mold from a home is so costly that insurers have stopped underwriting its elimination. According the NAIC survey, 34 percent of homeowners do not realize mold damage is not covered by their Homeowners Insurance.

4) Flooding. A third of the respondents to the NAIC survey believed that standard home owner insurance covers losses due to flooding. In fact, private insurance companies do not offer flood insurance. Only the federal government does. The reason is simple: the danger of flooding is so widespread and the effects of flooding are so costly that private insurers cannot make a profit by assuming the risk. To protect homeowners from financial disaster in the wake of a flood, Congress created the National Flood Insurance Program (NFIP), which offers flood insurance to homeowners who live in communities that invest in the infrastructure needed to prevent flooding. According to the U.S. Geological Survey, the entire United States is subject to flooding, although some areas face greater dangers than others. Homeowners who live in Special Flood Hazard Areas are required by law to buy flood insurance from the government. For everyone else, flood insurance is optional.

5) Pests. Just less than a third (31 percent) of homeowners believe their homeowners insurance covers losses due infestations of termites and other pests. Just as no areas of the United States are free from the danger of flooding, neither are any areas free from destructive pests such as termites, ants, rats, bats, and mice. As a result, insurance companies cannot afford to insure against the damage natural pests can wreak on a home.

The majority of homeowners realize that their homeowners insurance does not cover every type of damage to the home, but the NAIC survey shows that roughly a third do not realize that their largest asset is not insured against some of the most common dangers that threaten their home. Homeowners need to review their policies to fully understand what exposure they face, then determine if the cost of supplemental insurance is worth the added expense. Considering that the home is the largest asset most people own, it is in their best interest to make sure that a lifetime investment cannot be wiped out in a matter seconds by a natural or manmade disaster.

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