Published July 14th, 2009
Home Owner’s Insurance
Home Owner’s Insurance - Exclusions to Home Owner’s Insurance Coverage
Submitted By Bradley Steffens
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 through 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 property 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 result of a terrorist act. The result 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 widespread 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 result of Hurricane Katrina, flooding is not covered by homeowners insurance, even 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 widespread. Since private insurer’s will not cover flood damage, the U.S. Congress passed the National Flood Insurance Act of 1968, which created 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 available.
Animals. According to the American Pet Products Manufacturers Association’s 2007-2008 National Pet Owner’s Survey, nearly two thirds (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 widespread 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 massive. According to the Federal Emergency Management Agency (FEMA), earthquakes are responsible for $4.4 billion in property losses per year. Because of the cost and frequency of earthquakes, standard home owner insurance policies exclude property losses dues to the shaking of earthquakes. Cracked walls, broken foundations, ruptured sewer lines, even 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 available in many states. After the 1994 earthquake in Northridge, many insurance companies stopped offering earthquake insurance in California, however. Pressured by fearful homeowners, the state legislature passed a law requiring property insurance companies to offer California residents earthquake insurance through 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.
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