Seven Things You Should Know About You Home Insurance Policy Before Disaster Strikes
Not knowing these things about your insurance policy can cause you major headaches later
Reviewing a homeowners insurance policy can be challenging, but with more insurers inserting provisions to shift risk and costs to homeowners, a careful read is more important than ever! Here are seven things you should know about your policy now.
Most policies contain exclusions for floods, earthquakes, or landslides
In most parts of the country, insurance policies do not include coverage for losses caused by floods, earthquakes, or landslides. You should determine if you are in high-risk zones by checking flood and earthquake maps and make appropriate additions to your policy or get separate policies to cover the additional risks.
Different deductibles can result in unexpected out-of-pocket costs
Most insurance policies have at least two different deductibles that apply a flat dollar amount for most losses and another, higher deductible that applies if the loss is related to high winds. The latter could result in significant out-of-pocket expenses in the event of a loss. Read your policy carefully or contact your home insurance company and ask for clarification as to what your out-of-pocket costs will be in the event of a loss.
Hidden clauses can result in reduced or denied claims, even for legitimate claims
Check your homeowners insurance policy to see if they include a little-known provision called an anti-concurrent-causation (ACC) clause. This confusing clause may result in a denial of claim if a structure is damaged at about the same time by two risks, only one of which is covered. A good example is when your home is damaged by wind (covered) and by flood (not covered) at the same time. An ACC clause can limit or even negate your coverage for all the damage.
Demand surge may leave some homeowners unable to replace their homes
After a major loss, many homeowners are often shocked to learn that their policies do not cover the full amount of the damage and that they may face substantial out-of-pocket costs. A homeowners insurance policy may not guarantee home replacement, but may instead be limited to only the amount stated in the policy, or for a small percentage more. When a disaster strikes, building costs rise (this is called "demand surge"). This limited coverage in conjunction with the demand surge could leave the homeowner short of funds. Some insurance companies cover the full rebuild cost, so check with your insurance company to see what your policy covers.
Policies may not cover mold damage or high-value items
homeowners insurance policies often limit or exclude coverage for mold damage, non-flood water damage, computers, business property, art, food spoilage and many other specific items. Don't count on being covered for these items unless your policy specifically gives you coverage.
Building code compliance increases costs and is not always covered
Some policies exclude additional costs if a local construction ordinance or building code requires upgrades, such as elevation of the home to comply with flood codes. This coverage needs to be purchased separately as an add-on to the basic policy. A good example is a home on a beach. Building codes when the property was built may require it to be elevated ten feet, but new building codes might require the remaining property to be demolished and the property to be fifteen or even twenty feet off the ground.
Prices vary and homeowners should always comparison shop
Homeowners should compare prices if they experience a large rate increase and shop around at least once every three years. Many insurers raise rates for long-term policyholders if they believe that they are not price sensitive and unlikely to shop.