Potential Risks Not Covered by Your Homeowners Policy

If you are a little unclear about the various potentials risks that many not be covered by your homeowners insurance, then you are not alone. Studies show many consumers are a little foggy on the types of losses the typical HO policy will cover. One of the most common misperceptions is that flood damage is covered by the homeowners policy.
 
The study by the National Association of Insurance Commissioner (NAIC) has found 33 percent of the heads of household who have homeowners’ insurance incorrectly believe flood damage is covered by the homeowners policies.

In addition, the survey found other incorrect assumptions include:

* 68 percent believe vehicles stolen from or damaged on the property are covered under the homeowners policy;

* 51 percent incorrectly assume the HO policy covers damage from a broken main water line outside the home;

* 37 percent believe losses caused by a broken sewer line are covered;

* 34 percent assume mold damage is covered; and

* 31 percent think infestation-related damage (i.e., termites) is covered.

The NAIC polled 1,000 U.S. consumers in May, 2010. Of those surveyed, 673 said they were the head of household.

Another area of confusion concerns actual-cash-value versus replacement cost coverage. The NAIC reported many consumers do not understand actual-cash-value policies will only cover the cost to repair or replace damage to a home and its contents, less depreciation. Replacement cost coverage pays for the cost to replace or rebuild without depreciation. There is a significant difference between the two, which would amount to thousands of dollars.

There are numerous options a homeowner may want to consider to make sure their home is fully covered for a myriad of potential losses. For example, the National Flood Insurance Program is currently available for flood-related coverage; and you may want to look into endorsements for high value items -- jewelry, antiques, artwork, etc. In addition, if your home is use partially for business purposes you may want to consider a separate business policy.