Homeowners insurance doesn't cover certain perils and situations such as floods, earthquakes, mold or wear and tear. These exclusions can pose a severe risk depending on your location or lifestyle, so it’s crucial to understand your policy’s limitations.
Recognizing what isn't covered allows you to seek additional coverage or take preventive measures, safeguarding your investment and financial stability.
What Isn't Covered by Homeowners Insurance?
A homeowners policy doesn’t provide protection for negligence and damages due to specific events, such as flooding or earthquakes. All homeowner policies have exclusions, and understanding these can help homeowners make informed decisions about additional coverages they might need.
The situations that homeowners insurance doesn’t cover can be grouped into four categories: specific perils, homeowner neglect, business-related situations and rare events.
While homeowners insurance covers damages from fire and storms, certain natural disasters aren’t covered. These include:
Homeowners insurance does not cover water damage caused by natural flooding or rain that seeps up from the ground. For this kind of coverage, separate flood or hazard insurance through a program like the National Flood Insurance Program is required.
Damage caused by earthquakes, landslides, mudslides, sinkholes and other natural shifts in the earth is not covered. Specialized insurance, like earthquake coverage, may be needed in high-risk regions.
Homeowner Neglect or Intentional Damage
Damages caused intentionally or by homeowner neglect are often not covered by homeowners insurance. Some examples include:
Damage caused by animals such as rats, termites, bees and bed bugs is generally not covered. Infestation removal and related damages are typically the homeowner's responsibility, as the issue can be avoided with maintenance.
Mold or wet rot
Long-term leaking, poor maintenance or naturally occurring flooding that leads to mold growth is usually not covered. However, homeowners insurance covers mold if it’s caused by a covered peril, such as water leaks or a fire.
Wear and tear or neglect
Routine maintenance issues, wear and tear and neglect leading to damage are not covered. Homeowners are expected to take necessary precautions to prevent property damage.
Ordinance or law issues
If a building inspector halts or modifies your renovation and you lack permits or aren’t meeting building codes, the costs incurred (e.g., tearing it down, new materials or labor) aren't covered by a standard policy. Additionally, home insurance will not reimburse you for any expenses incurred if you make enhancements to your home to meet new building codes or regulations. You can purchase additional coverage for this if needed, however.
If you or a household member purposely damage your property, the insurance company won't cover the costs.
Some rare events, such as war or government action, are not covered by home insurance.
Home-based business liability
Homeowners insurance does not extend personal liability coverage to businesses you operate within your home’s premises. A separate business insurance policy may cover this.
Damage from nuclear reactions, radiation or radioactive contamination is not covered, though fire damage resulting from a nuclear hazard might be.
Damage caused by any type of war, including civil and nuclear war, is not covered.
Damage or destruction by a governmental or public authority is not covered.
Airbnb or HomeAway-related issues
If you rent out your home on platforms like Airbnb, this home-sharing would be considered “business use,” and you won’t be able to recoup damages made by guests through your home insurance policy.
Other Home Insurance Exclusions
Beyond neglect or rare events, there are other home insurance exclusions worth noting.
Power surges caused by utility company
Damage from power surges originating off the property is not covered, though surges caused on the property may be.
Certain dog breeds
Some dog breeds may be excluded from liability coverage, especially if they have a history of biting or are considered high-risk.
While home insurance can cover personal items inside your car, it won’t cover the car itself.
Certain high-priced items
Standard homeowners insurance policies may not cover expensive items such as art or antique jewelry, as there is usually a limit. However, you can purchase additional coverage to get protection for such items.
What Homeowners Insurance Covers
Homeowners insurance covers your personal belongings, your liabilities and your living expenses during a covered incident. It's a vital safeguard against unexpected damages and losses, offering peace of mind in the face of unforeseen events.
While flooding, earthquakes and war aren’t typically covered, understanding what is covered under a standard policy is essential to ensure that you have the right level of protection.
- Structural damage: Covers damages to the home's structure, including walls, roof and foundation, due to a covered peril.
- Personal belongings: Protects personal items like clothing, furniture and electronics against theft or damage.
- Liability protection: Covers legal and medical expenses if someone is injured on your property.
- Additional living expenses: Pays for temporary lodging and meals if your home becomes uninhabitable due to a covered peril.
- Other structures: Extends protection to detached structures like garages, sheds, fences or mailboxes.
- Certain types of water damage: Covers water damage resulting from sudden and accidental issues with residential water systems, but not natural disaster floods.
Some commonly covered homeowners insurance perils include:
- Fire and smoke damage
- Windstorm or hail damage
- Lightning strikes
- Theft of personal property
- Damage from vehicles or aircraft
- Falling objects
- Weight of ice, snow or sleet damage
Replacement Cost vs. Actual Cash Value
What your policy can replace depends on whether your policy has replacement cost or actual cash value (ACV) — without the right coverage, you may find yourself unable to fully replace or repair damaged or lost items.
Replacement cost refers to the amount it would take to replace or rebuild your home or repair damages with materials of similar kind and quality without deducting for depreciation. On the other hand, actual cash value considers the current market value of the item, taking into account depreciation. This means you may not receive enough money from a claim to replace the items that were lost or damaged. The table below illustrates the key differences between the two.
Actual Cash Value
Cost to replace or rebuild with
Current market value of the item, considering
Ensures you can replace lost
May not provide enough funds to replace lost
Effect on Premiums
Typically results in higher premiums.
Usually results in lower premiums.
Those wanting full replacement without
Those willing to consider the current value
Understanding these two valuation methods is key in selecting the right homeowners insurance policy. While replacement cost offers more comprehensive coverage, it may lead to higher premiums. Actual cash value, although potentially more affordable, might not provide sufficient funds to replace lost or damaged items. Carefully consider your specific needs to choose the coverage that best aligns with your financial situation and risk tolerance.
Optional Coverages for Standard Exclusions
There is no such thing as a home insurance policy that covers everything, but you can supplement standard policies with extra coverage if needed. Getting additional coverage allows you to stay protected against events or issues that aren't typically covered by a policy. Some coverage you can get to fill in the gaps include:
- Flood insurance: Homeowners insurance covers floods only under specific circumstances, but if you live in a flood-prone state, you can get flood insurance from private companies or the National Flood Insurance Program (NFIP).
- Earthquake insurance: If you live in a state prone to earthquakes, such as California, you might want to buy earthquake insurance to stay protected against such incidents. Many major insurers offer separate earthquake insurance, making it accessible for homeowners who need it.
- Sewer or water backup insurance: You can also get coverage for damage from sewer or drain backup to avoid the high costs of water damage repairs.
- Ordinance or law coverage: As building codes change, homeowners may be faced with unanticipated expenses in order to bring their property up to code. This additional coverage pays for those unforeseen expenses, and your home doesn't have to be damaged to file a claim under this coverage.
Adding these optional coverages can enhance your protection, but they may lead to higher premiums. Evaluate your unique risks and consult with an insurance expert to craft a policy that provides the coverage you need without unnecessary expense.
Determining Your Coverage
When determining how much home insurance you need, keep in mind that you'll need enough coverage for your personal belongings, additional living expenses and the cost to repair, rebuild or replace your home in the event of a disaster. The replacement value of your property, the age, size and features of your home and your personal financial situation all play a role in determining the right amount of coverage.
Assess dwelling coverage
Determine the cost to rebuild your home, focusing on the replacement cost of the property itself, not the land or market value. Consider factors like building materials, square footage and unique features.
Evaluate personal property coverage
Calculate the value of your personal belongings, including furniture, electronics and clothing. Consider upgrading to replacement value coverage if you have items that depreciate rapidly or are of significant value.
Consider additional living expense insurance
Ensure that you have coverage for living expenses incurred due to a covered loss, such as hotel stays or temporary rentals. Typically, 20% of your dwelling coverage may be sufficient.
Determine liability coverage
Assess the value of your assets and consider your potential liability risks. Purchase enough liability insurance to cover these assets, keeping in mind that increasing your limits may only cost a few dollars more per month.
Evaluate additional coverage needs
Depending on your location and individual situation, you may need additional coverage for specific perils like floods, earthquakes or windstorms.
Get multiple quotes to ensure you are getting the best rate and coverage that fits your needs. Some providers might offer more coverage than others at the same price, allowing you to get the best homeowners insurance policy at the cheapest price.
If you’re still unsure about how much coverage you need, consulting with an insurance professional and carefully assessing your unique circumstances might help ensure that you have the appropriate level of protection without over-insuring or leaving gaps in coverage.
About Mark Fitzpatrick