Homeowners insurance is one of those things we take for granted. I can’t tell you how many times I have arrived at a closing table only to find out the buyer had neglected to arrange insurance, and the lender refused to go on until coverage was obtained.
If you are not in the insurance business, you probably assumed your policy covers just about everything bad that might happen to you or your property.
For the most part, you are right. But a number of situations may not be covered, depending on your carrier and policy. Here are some areas you may wish to clarify with your insurance company BEFORE such events occur:
• Flooding, defined as rising surface water, is typically not covered. But if your upstairs toilet breaks and floods the house, that is likely to be covered. One agent laughed at me and was surprised anyone would be so naive as to think he was covered for flooding. Silly me.
• Damage from earthquake or sinkhole is often not covered. According to my friend Walter Reeves, sinkholes are uncommon in northern Georgia. But builders sometimes dig large pits for construction debris or stumps. Over years, these materials decompose, leaving depressions of varying depth. Your insurance probably will not cover any loss as a result of "earth movement."
• Environmental hazards, like lead-based paint or asbestos. For example, if your home was built before 1978 and your renovations create dust and debris that contains even a small amount of lead, that dust could injure a child or a pregnant woman. Any financial liability you incur as a result of that dust would not be covered by your homeowners policy.
• If you rent the house to others, the renter's personal possessions are not covered by your insurance. My standard lease now requires my tenants to buy their own renters insurance.
• If you have a home business, any liability incurred as a result of that business is not covered.
• Lost or stolen items may be covered, depending on your policy.
• Extremely valuable items are often subject to limits. I found out my own policy would fully cover a Van Gogh painting that burned up in a fire, but only if I could prove it was the original and not a cheap print. Mine is a cheap print.
• Lost wages are not covered by homeowners insurance, but lost rent may very well be covered. I had a kitchen fire in one rental a few years back, and insurance paid every penny of rent I would have collected during the repair period.
• Burst pipes due to negligence, such as inadequate heat. This hit me hard a few years back when several renters left town for the holidays and turned their heat off. We had a cold snap, and I had burst pipes at multiple properties.
• If a county inspector requires you to bring wiring or plumbing "up to code," the cost is not covered.
• Mold, fungus or wet rot damage is often not covered. This can be a major expenditure, so clarify your coverage.
• Sewer back-ups. If the damage is on your side of the back-up, you may be covered. For damage on the county side, probably not.
• Termite, wood destroying organisms, rodent or bird damage is usually not covered. Interestingly, most lenders no longer require a termite clearance letter in a new loan closing, but I strongly recommend that the buyer insist on a full termite inspection.
• Coverage for damage due to explosion, fire or smoke in acts of war or terrorism varies from company to company.
• Trampoline or treehouse injuries are covered by some companies, but not others.
• Boat theft over 25- or 50-horsepower, depends on your policy. Few policies cover higher-power boats.
• Coverage for aggressive dog attacks on others varies by company.
• Vacancy for more than 30 (or 60) days may cause your coverage to lapse, so if you plan to take a trip around the world, check in with your insurance agent first.
In doing research for this topic, I was surprised at the lack of coverage uniformity. It is your responsibility to find out if you are covered, before a problem arises. I have posted a brochure examining the topic in greater detail, but warn that the information may not apply to your policy. It can be downloaded from Money99.com.
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