The last thing you want to hear after your home has been flooded or a hurricane knocked down your gutters is that your insurance policy won’t cover the damage. And yet, that is what many homeowners are surprised to hear, even after dutifully paying for their policies for years. Common policy holes — often laid out in fine print — can leave homeowners paying for costs out of pocket. Here are some common surprises that come up for homeowners:
Private insurance rarely covers flooding, so homeowners who want that protection need to get it through the federal government’s National Flood Insurance Program, which is run by FEMA. Many homeowners, though, mistakenly think that their insurance policy does cover flood damage. The risk is greatest for homeowners who live near bodies of water or in areas that are subject to storms or hurricanes.
Just as with flooding, consumers who want earthquake coverage often need to take out an additional policy for it. Earthquake coverage is usually only an issue in areas that face a high risk of trembles, like along the San Andreas Fault in California. Still, earthquake damage can strike even in areas that aren’t expecting it, as it did in the District of Columbia area in 2011, causing millions of dollars worth of damage to monuments and other buildings.
Deductibles have been increasing, according to the Consumer Federation of America, and that means homeowners shell out more out-of-pocket cash before their insurance coverage kicks in. Even damage that is covered by your policy can end up leaving a dent in your budget.
Because of the technical term known as “anti-concurrent causation,” if two events happen at once, and one of those events, like flooding, is not covered by insurance, then the policy might not cover damage from either event. That means flooding and wind damage that occur together could end up being very costly for a homeowner. The phrase is one that most homeowners aren’t familiar with — until it applies to their situation.
Post-traumatic emotional support
Homeowners who experience traumatic events, such as fires or floods that completely devastate their homes, often find themselves in need of emotional support along with financial help. In some cases, they have lost pets in the event, compounding their grief. Insurance companies do not typically cover this type of service; instead, support groups and online forums can help.
Insurance companies often recommend specific contractors to handle repairs, but a better strategy for homeowners may be to solicit competing bids, including from contractors not associated with the insurance company. Homeowners should ask their insurance companies about how competing bids are handled and consider whether it makes sense to go with the most competitive offer.
Filing for coverage after damage, as well as any necessary appeals, can be time-consuming work, and it can take away from work time. Insurance doesn’t typically reimburse homeowners for lost wages. For those with jobs that require face time and pay by the hour, the cost can be particularly high. When you are facing increased costs from taking care of damage, then a hit to your income is the last thing you need.
A total rebuild
Most insurance policies have caps, which means they might not cover the cost of completely rebuilding a home after a fire, for example. Most homeowners, though, mistakenly think policies do cover that full cost of rebuilding. When you’re setting up your policy, be sure to check on the cap and calculate whether that amount would cover the cost of a total rebuild, if it were necessary.
While insurance policies often cover damage caused by burst pipes, they typically don’t if the burst pipe is caused by homeowner negligence. That includes forgetting to drain pipes or leaving the heat on during a winter vacation. Of course, you’ll want to be sure to take these precautions anyway to prevent damage to your home, but you should also know that if you forget, the cost might fall to you.
Even if new laws require updates in undamaged parts of a home, insurance policies usually don’t cover those costs. Homeowners worried about this can take out extra “ordinance or law” coverage. When you’re buying a home, you’ll also want to make sure it’s up to code and consider negotiating any upgrades into the price offer process.
The bottom line for homeowners is that homeowners insurance doesn’t always come with the protection that you think it does — so be sure to read the fine print ahead of time to prevent nasty surprises when you’re already going through a difficult time.
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