Home Owner’s Insurance – Exclusions to Home Owner’s Insurance Coverage
Imagine this scenario: A terrorist sets off a bomb, blowing up a dam near your home. A chunk of concrete falls on your house, tearing a hole in the roof. A few minutes later, water from the burst dam rushes down the street and floods your home, ruining your carpet, furniture, and personal possessions. Frightened by the rising water, your dog attempts to scratch its way by your door, shredding the surface. In the midst of the chaos, an earthquake hits, cracking the concrete slab under your home and dislodging the sewer line. Dazed, you wander outside just before a meteorite falls from the heavens and demolishes what remains of your home. Having recently read your homeowner’s insurance policy, you think, “Thank goodness for that meteorite!”
Many homeowners believe that virtually any damage to their home is covered by their homeowner’s insurance. In fact, many kinds of character loss are excluded from a standard homeowners insurance policy. In the doomsday scenario above, for example, only damage caused by the meteorite would be covered under standard homeowners insurance. Some of the other disasters could be covered by separate insurance policies, or by additions to the policy known as riders or endorsements. Some things are simply uninsurable. Let’s examine the disaster scenario, point by point:
Hostile attacks. The damaged caused to your roof by the flying piece of concrete would not be covered by homeowner’s insurance, because it was the consequence of a terrorist act. The consequence would be the same if the dam were blown up by an incoming missile from a hostile state. Acts of terrorism and war are excluded from homeowner’s insurance because the damage could be so extensive that insurance companies could not pay all the claims without going broke.
Floods. As residents of New Orleans learned when a levee broke as a consequence of Hurricane Katrina, flooding is not covered by homeowners insurance, already when the flooding is caused by the failure of a man-made flood control system. Floods are excluded from homeowner’s insurance for the same reason that war is: the damage can be too extensive. Since private insurer’s will not cover flood damage, the U.S. Congress passed the National Flood Insurance Act of 1968, which produced the National Flood Insurance Program (NFIP). Funded by premiums from homeowners and supplemented with income tax dollars, the government program is the only flood insurance obtainable.
Animals. According to the American Pet Products Manufacturers Association’s 2007-2008 National Pet Owner’s Survey, 63 percent of American households own a pet of some kind, including more than 43 million homes that own dogs. Pets of all kinds can cause damage to the home. Because of the extensive risk posed by pets, insurance companies exclude pet damage from home owners insurance coverage. The pets themselves are not covered either. According to a survey by the National Association of Insurance Commissioners, 22 percent of respondents mistakenly believed that their homeowners insurance covered injured or stolen pets. Damage caused by infestations of rats, bats, termites, ants, or any other wild creatures is also excluded from coverage.
Earthquakes. Since 1900, earthquakes have occurred in 39 states and caused damage in all 50. Earthquake damage can be enormous. According to the Federal Emergency Management Agency (FEMA), earthquakes are responsible for $4.4 billion in character losses per year. Because of the cost and frequency of earthquakes, standard homeowner insurance policies exclude character losses dues to the shaking of earthquakes. Cracked walls, broken foundations, ruptured sewer lines, already the collapse of a home caused by shaking is not covered. However, if an earthquake causes secondary damage, such as a fire, the secondary damage would be covered by homeowners insurance. Separate earthquake insurance policies are obtainable in many states. After the 1994 earthquake in Northridge, California, many insurance companies stopped offering earthquake insurance in California, however. Pressured by fearful homeowners, the state legislature passed a law requiring character insurance companies to offer California residents earthquake insurance by participation in the California Earthquake Authority (CEA). To limit the cost of claims, the CEA-backed policies cover living spaces only, not swimming pools or other nonessential structures.
Other types of damage may be excluded from your homeowners insurance policy, including damage caused by your own children. The home is the largest asset most people own. To be sure its value is protected, consult with your insurance agent to make sure you have separate policies, riders, or endorsements for your greatest insurable risks.