Have you ever bought a house? Chances are if you are reading this, you have.
There is a lot going on when you are trying to purchase a new home.
-Home Inspections
-Endless paperwork required by the loan originator
-Selling your current house
-The logistics of moving all of your stuff from one place to another.
It can all be overwhelming.
You call your local insurance agent and tell them you need Homeowners coverage.
Oh, and the bank needs the binder yesterday.
You trust your agent because they haven’t given you any reason not to. They write up a standard HO3 – Special Form Homeowners Policy for you.
Sounds great. Right?!?
Here’s the thing, there is a good chance you have no idea what your home is actually covered for.
Let’s take a look at five common claims situations and how the standard policy would respond.
1. ICE DAMS
Ice dams are created when ice builds up on the eaves of you home, which are often cooler than the rest of the roof line due to the lack of heat coming up from the home. As ice builds up, water can back up and be trapped on the roof by the barrier of ice. When this happens, water is pushed back up under the shingles, entering the home.
Here’s the good news, the water damage to the physical structure of the home would be covered (subject to your deductible).
The bad news is, the standard policy will not cover any of the water damage to your contents in the home.
The standard HO3 policy covers contents or personal property on a broad form. This means that unless it is specifically listed as a covered cause of loss, there is no coverage. You’re on your own to repair or replace the damage to your couch, table, clothes, etc.
The Solution – SPECIAL PERSONAL PROPERTY ENDORSEMENT
You can cover this exposure with the Special Personal Property endorsement. Some carriers call this HO15 coverage and some just write the policy on an HO5 form, either way this eliminates the named causes of loss and says that all losses are covered unless specifically excluded.
I’ll save you the time of reading the whole policy form, water damage from an ice dam is not excluded on the HO5 or HO15 form.
2. WIND DEDUCTIBLES
Properties close to the water are often subject to a special deductible for a wind loss. The coastal winds can lead to extensive property damage and by requiring a separate wind deductible; the insurance company is pushing some of the risk back on the policy holder.
Wind deductibles are most often written as a percentage of the total dwelling coverage.
If the Coverage A dwelling amount on your policy is $500,000 and you have a 5% wind deductible, you would be responsible for the first $25,000 of the loss. This can lead to massive out of pocket costs.
The Solution –NAMED STORM/HURRICANE DEDUCTIBLE
Whenever possible, it is adventurous to find a carrier that will use a named storm or hurricane deductible rather than a wind deductible. The named storm deductible dictates that only losses caused by a named hurricane or tropical storm by the national weather service, is subject to the special deductible.
While it may not be possible to avoid the named storm deductible when insuring a coastal property, the coverage provided is much more inclusive than the wind deductible. A standard wind loss would be covered by your AOP or all other peril deductible.
3. REFRIDGERATED PRODUCTS
In New England, both blizzards and summer thunderstorms can lead to the loss of electricity at your home. When the power goes out, so does your refrigerator. You had just gone to the grocery store to stock up on almond milk and kale salad and the twenty-four hours of roughing it with flashlights and candles has led to the spoilage of your fridge full of treats.
Food spoilage due to an off premises power outage is not covered by your standard HO3 homeowners policy.
The Solution – FOOD SPOILAGE ENDORSEMENT (AND/OR A GENERATOR!)
Most insurance carriers will offer an endorsement to cover food spoilage after a power outage. These losses can be significant as we all know you can’t go to the grocery store and get out of there without spending a small fortune. Because of this, insurance carriers have placed caps on the amount paid out under this coverage. Most companies will only cover $250-$500 of spoiled food due to the loss of power.
At that point, it may not be worth filing the claim and having that mark against you. While it is highly unlikely that a policy would be non-renewed or canceled due to a $250 food spoilage payout, claims history is taken into effect when determining rates and policy eligibility.
The better solution, get a generator.
4. FLOOD
YOUR HOMEOWNERS POLICY DOES NOT COVER FLOOD.
The homeowners policy specifically excludes flood and you are not able to buy additional coverage on your homeowners policy to include it.
The National Flood Insurance Program (NFIP) has defined flood as:
“… a general and temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow.”
Every home is in a flood zone. However, flood zones are broken up by letter codes, some are considered preferred zones and some are higher risk zones.
If your home is in an X zone or a preferred zone, the mortgagee company may not require you to carry flood insurance. This leads most people to forgo the coverage.
Floods can happen anywhere it rains.
80-85% of those affected by the Houston flooding in August of 2017 did not have flood insurance.
And 40% of the properties that were flooded in Houston are in zones considered to be a minimal flood hazard.
The Solution – FlOOD INSURANCE POLICY
Not included in the insurance definiation of flood is the bursting of a pipe or washing machine hose. These types of loses, begining within the home, would be covered by your standard policy and subject to your deductible.
If your home is in a preferred or low risk flood zone, the flood insurance policy premium can be very inexpensive. Even if you are not near the coast line, heavy rains can lead to flooding.
A flood insurance policy can cover the damage to your home, as well as your contents. Companies now are offering flood insurance outside of the National Flood Insurance Program that offers increased coverage and lower rates.
5. JEWELRY
A homeowners policy will cover your jewelry, subject to your deductible, as contents if damaged by a covered cause of loss. However, if your jewelry is lost or stolen the policy will have special limits of coverage. The basic HO3 form will cover up to $1500 for theft of jewelry.
This means if you had a $10,000 ring stolen from your home, the insurance company would pay you $1500 for it.
Ouch.
Check your policy for other coverage limitations on rugs, furs, silver, guns and other potentially higher valued items.
The Solution – JEWELRY SCHEDULE OR RIDER
By scheduling or listing your jewelry on the homeonwers policy, you will pay a small additional premium to protect your jewelry from its full value. Jewelry scheduled on the home policy, is not subject to the policy deductible.
The Takeaway – Homeowners coverages
While there is a lot of coverage afforded in the standard Massachusetts homeowners policy, there are some important homeowners coverage gaps that need to be addressed. It’s important to know what your policy will cover if you do suffer a loss.
Reach out to our office for a review of your homeowners coverage and make sure you are protected for these common homeowners coverage gaps. These coverage gaps could cost your thousands.