Insurance à la Carte

Ryan Parnow, general manager of Clearly Clean Window Washing in Cedar Rapids, Iowa, learned the hard way that homeowners' insurance won't cover everything that happens inside and outside a policyholder's property.

The lesson began when a tree fell on his garage and completely destroyed it. "I later learned that the coverage on my garage was limited to 10% of the value of the house — which didn't come close to covering the cost of (demolishing) and rebuilding the garage," he says.

Unfortunately, homeowners' insurance is not all-inclusive, and according to Scott Hammersand, personal lines risk advisor at Overmyer Hall Associates, an insurance agency in Columbus, Ohio, it's almost become completely à la carte.

"Don't let the TV commercials fool you into thinking that saving a few bucks should be your goal," Hammersand says. It's imperative to communicate with your agent about what is and isn't covered by your policy, he adds.

Also, know that there are different types of policies, explains Greg Martin, president of Think Safe Insurance in Brandon, Florida. "Some are 'open perils,' which cover everything except what is excluded, and some are 'named perils,' which cover only things specifically listed on the policy."

Martin says the most common homeowner's insurance is an HO3 policy for owner-occupied, single-family homes, and it's an open peril policy with named exclusions. Since an insurance policy is essentially a contract, it is advisable to carefully review all parts of every policy you consider and contact the agent with any questions.

Following are examples of some things you might be surprised to learn are not covered by a regular homeowners' insurance policy.

While you might expect your insurance company to completely rebuild your home after a loss, it might not cover as much as you expect. "The increased cost of labor and material has caused the overall price to rebuild a home to skyrocket over the last few years," Hammersand explains.

If, say, your house was insured to its value in 2019 and it burns down in 2023, he cautions that you might have enough coverage to pay only half the cost to rebuild it. However, you can buy an extended replacement endorsement that extends your dwelling coverage. "This coverage could protect you from having to downsize or spend your own money," Hammersand notes.

Imagine arriving at your home to discover your yard is a muddy mess because the water line broke. "After a quick call to your insurance company, you find yourself having to foot the bill because you didn't have an inexpensive endorsement added to your policy," says Hammersand. He suggests checking with your agent to find out if service/utility line coverage is included in your policy.

"Suppose your pipes upstairs get clogged and water starts to push back up and overflow the toilets, sinks and drains," Hammersand says. Or there is a heavy rainstorm, your sump pump fails, and the basement begins to fill with water. If you don't have an endorsement for this, he warns that you could be left holding the bill.

Whether it's mold, termites or bed bugs, homeowners' insurance doesn't cover infestations because it considers them to be avoidable. "If there is water damage and a homeowner takes care of the problem right away, mold will not begin to grow," says Michael Orefice, SVP of Operations at Smart Financial in Orange County, California. Likewise for termites and bed bugs. Some insurers do sell special endorsements that, for an additional premium, will cover these problems, Orefice adds.

Similar to the reason why insurers will not pay for infestations of bed bugs, mold and termites, they won't pay for damage caused by rodents. Orefice says insurers consider pest infestations as preventable with the right upkeep and maintenance.

If you put your car in drive instead of reverse, and smash into your garage — or any other part of your property — your homeowners' insurance may or may not cover it. If your homeowner's policy doesn't cover such an event, collision coverage in your automobile policy might — if your automobile policy includes collision coverage. "Anything that you hit with your car would only be covered by your (automobile insurance policy's) collision coverage — if you have it," explains Orefice.

If there is ever another war on U.S. soil (nothing to speak of since 1865), don't expect your insurance company to cover the damage. And if there is a Chernobyl-like nuclear disaster, insurance won't foot the bill for that either. "Damage caused by war or a nuclear spill that may leave your home uninhabitable for years is not covered," says Orefice.

Let's say you have an old roof that should have been replaced years ago, but you kept putting it off. If a storm then damages the roof, you would not be able to claim it because homeowners insurance does not cover wear and tear.

"An old roof needs to be replaced and you can't even blame a storm on it when the claims adjuster looks at what kind of shape it was in before the storm," warns Orefice.

If your four-legged friend damages your home, homeowners' insurance is not likely to pay for repairs. "However, a dog bite may be covered, if the dog bites someone outside of the household — but only if the dog is not on the list of excluded breeds," Orefice explains.

Whether God is actually responsible for natural disasters has been a hotly debated topic. And according to Martin, the terminology is rather vague as it relates to homeowners' insurance.

"Usually you will see coverage for things like fire, wind, etc. ," he says, "but flooding is usually excluded." Damage from hail and lightning may be covered, but landslides and earthquakes are not.

The term "act of God" is sometimes used to assess a customer's claims history. "Some carriers won't count a claim against you if it's an 'act of God,'" says Martin, "but that is carrier specific."

You may be working a part-time gig to earn extra money, but if in the process, your home is damaged, you may be using those extra funds to pay for it. "The associated materials and equipment may not be fully protected by your home insurance policy since they are used for business," says Charlie Wendland, head of claims at Branch Insurance in Cleveland. "If you're working out of your home, you may need a separate insurance policy to cover the loss or damage of business equipment."

If you plan on doing major home renovations, talk with your insurance agent first. "Some carriers are known to void coverages you paid for if you don't notify them for $5,000 of improvements," Hammersand warns. "Others will decline all coverage if things like walls are being moved, so be sure to check before you begin."

Insurance companies don't classify everything in your home as personal property. And Hammersand says there are often limits for certain items, which can range from $100 to $10,000 per item.

For example, he says that if his wife lost her wedding ring, he would have to pay out of pocket to replace it — unless he added it to a separate personal article or "inland marine" policy (which refers to items transported over land, for example, by a truck — compared with a marine policy, which covers items transported over water by a ship).

Besides jewelry, watches and semiprecious stones, Hammersand says other items with special limits include art and glass; cash and precious metal; silverware; firearms and related equipment; and portable electronics and business equipment.

Terri Williams has over 10 years of experience writing about student loans, mortgages, real estate, budgeting, home improvement and business in general. Her work has appeared in The Economist, TIME, Forbes, Architectural Digest and Realtor.com. Read More