Homeowners Insurance - Six Risks Not Covered

Millions of Americans mistakenly believe their homeowner’s insurance covers hazards that are excluded from basic policies, the National Association of Insurance Commissioners (NAIC) reports. The group’s most recent survey finds that roughly a third of homeowners do not know that their homeowners insurance does not cover common types of home damage. Here are six areas of confusion:

1) Automobiles and boats. More than two thirds (68 percent) of the homeowners surveyed thought that damage to automobiles and boats parked on their property was covered by home owners insurance. This is false. Vehicles require separate insurance.

2) Earthquake losses. Thirty-five percent of respondents to the NAIC survey believed that their standard homeowners insurance covered losses from earthquakes. Not so. Insurance against earthquake damage is available to most homeowners, but it must be purchased separately. The cost varies from one area to another, depending on the likelihood of an earthquake striking. Alaska, California, and Hawaii lead the nation in the number and destructiveness of earthquakes, but severe earthquakes have occurred in the Mississippi Valley, the Southeast, and the Northeast. Earthquakes cause $4.4 billion in damage each year, according to the Federal Emergency Management Agency (FEMA). Insurance companies stopped offering earthquake insurance in California in 1994, after a severe earthquake struck the Los Angeles suburb of Northridge. The California legislature passed a law that requires property insurance companies doing business in California to offer limited earthquake insurance through the California Earthquake Authority (CEA), a state-backed insurance pool.

3) Mold removal. Colonies of mold growing in a home pose a health risk to the residents. The problem is so widespread and the cost of removal so high that insurers exclude mold damage from standard life insurance policies, a fact that 34 percent of those surveyed the NAIC did not know.

4) Flood destruction. Fully 33 percent of homeowners surveyed by the NAIC believe that the destruction caused by a flood is covered by traditional home owner insurance. Those respondents are misinformed. Flood insurance is available, but only as a separate policy and only from the government. Private insurers got out of the flood business in 1968, when the U.S. Congress created the National Flood Insurance Act. The law established the National Flood Insurance Program (NFIP), a program that provides flood insurance to people living in communities that take flood control measures. Homeowners living Special Flood Hazard Areas are required by law to purchase flood insurance.

5) Pest infestations. Slightly less than a third of respondents to the NAIC survey believe that damage caused by household pests, such as termites, ants, rats, and mice, is covered by their standard homeowners insurance. This is a fallacy. Pests are so widespread and cause so much damage that private insurance companies cannot afford to insure against the losses they generate. Homeowners must be vigilant in controlling infestations of termites and other pests.

6) Pet destruction. Almost two thirds (63 percent) of American homes have at least one pet living in them, according to 2007-2008 National Pet Owner’s Survey conducted by the American Pet Products Manufacturers Association. More than 43 million households own dogs, and 38 million own cats. Rabbits, rats, birds, and tropical fish are also prevalent. Chances are a child’s goldfish is not going to damage a house, but other animals can wreak a surprising amount of destruction. Pet damage is not covered by homeowners insurance, nor is harm to the pets themselves, a fact that comes as a surprise to more than one fifth (22 percent) of homeowners, according to the NAIC.

People sometimes refer to their home as their castle, but the typical American home is fragile, easily damaged by any number of destructive forces. A significant number of homeowners assume that their homeowners insurance provides blanket coverage against losses incurred on their property. This can be a costly assumption, especially since a home typically is the largest asset a family owns. To protect their investments, homeowners need to understand what kinds of damage are covered by their policies and where they are exposed to risk. They should then ask their insurance agents what types of additional policies, riders, and endorsements are available to safeguard their homes against disaster.