Things you need to know about your Homeowner's Insurance Policy
As an insurance broker I often hear about issues with claims in the industry. From my personal experience these claims have issues due to a lack of communication - whether it be misunderstandings or a communication breakdown between different parties. Insurance contracts can be complicated especially when diving deep into the specifics of the contract because it has to be very specific about what the contract covers and what it excludes. This makes it very difficult for someone who does not work in the industry to understand what exactly they are buying.
So what should you know about home insurance? Well let's start with the basic concept of insurance - why do you buy insurance? Most people purchase it to protect their large assets if something were to happen to them - ie house, car, business etc. Ideally insurance does this by putting you in the same financial position as you were just before a loss or claim. That means if your house burns down your house should be replaced as it was before the loss. However this simple contract gets much more complicated as the intent of the contract may be misconstrued by the person buying insurance or a judge. Each insurance contract or policy is different depending on the company you purchase it from, but most homeowners are insured under two types of insurance - Named Perils or Comprehensive. What exactly does that mean?
Named Perils means that only very specific perils are covered - perils are something that causes a loss or damage to your property. Named Perils comes under different forms but typically will cover fire, lightning, wind, explosion, theft, vandalism, smoke from a cooking device (IE oven), aircraft or vehicle impact and falling objects. Different companies may offer different named perils than this so it is very important to check with your insurance company to see what perils you are covered for! The most important thing to know about named perils is if it is not listed under insured perils then there is no coverage for it - meaning the damage to your home has to occur by something on this list. Damage from anything else IS NOT COVERED.
Comprehensive is now far more popular as the coverage is much broader than named perils - aka it covers a lot more things that could happen. Most likely your home insurance policy is a comprehensive form unless it is older or not well kept. Comprehensive coverage means that all forms of damage (fire, lightning etc) is covered EXCEPT for what is excluded on the policy. To understand what is covered you must know what is excluded under your policy. A few typical exclusions are:
Wear and Tear - Your insurance policy is not a maintenance contract and will not pay for upkeep of your home. Your old shingles that are starting to curl need to be replaced at your own expense as insurance does not cover any wear and tear. You are responsible for keeping your house in good condition and your insurance company will deny a claim if a loss is due to a lack of maintenance ie your roof is leaking because half the shingles are missing.
Mould and Fungi - Mould is excluded because it may be caused by poor housekeeping or a consistent leak/seepage. This means it does not grow suddenly or accidentally and is not covered.
Damage by insects and rodents - Not every insurance company excludes damage caused by rodents and insects but the majority do. It is always best to check with your insurance company to see if this is excluded.
Nuclear- There are some things that would be too catastrophic for insurance companies to insure and a nuclear event falls under this category. Nuclear explosions are not covered under any insurance policies, but the government does provide some coverage.
Pollution - This is typically excluded from your policy, although there may be a very small limit of a few thousand dollars for cleanup costs. This means there is no coverage for leaking oil tanks or pesticides that you spray.
Earthquake - Earthquakes are excluded in your policy along with earth movement. This means the earth shifting or sinkholes. Most companies offer earthquake coverage for an additional premium, although you should check what the deductible is on the coverage as it is typically very high.
Flood - Flood or overland water is excluded from your policy but most companies do offer coverage depending on where you live. It is harder to obtain coverage if you live close to a lake, river or flood plain. If you do purchase flood coverage it still does not include any coverage for ground water that seeps through your basement floor or walls.
Sewer Backup - There is no coverage under a typical policy if your sewer or septic tank backs up into your home. These claims can be very costly, as sewage is not easy to properly clean up. As with flood coverage, sewer backup coverage is offered by most companies to purchase.
Terrorism/War - Very similar to the nuclear exclusion there is no coverage for terrorism or war because the damages would be too catastrophic for insurance companies to cover.
Criminal Acts - If you burn down your own home, keep illegal goods or perform other illegal acts there is no coverage under your policy. This one is fairly self explanatory.
Intentional Application of Heat - If you are ironing your shirt in the morning and burn it there is no coverage. However any resulting damage is covered.
Freezing of Indoor Plumbing - There is a stipulation in most policies that states you must have someone check your house every 4 days if you go away for vacation or other reasons during the winter. This is to ensure that your furnace is working correctly and your pipes do not freeze. This exclusion ONLY applies if you go away for 4 days or more and do not have someone check on your home.
Vacant - If you leave your home for 30 days with no intention to return to it ie you buy a new home and put your old one up for sale, there is no coverage after 30 days. This is because the risk is much greater on a vacant home. Most insurance companies will offer limited coverage BUT you must notify your insurance before leaving it vacant. Why are vacant homes such a big deal? They are ideal targets for arsonists, vandals and thieves as no one is there to check on the home.
By no means is this an all inclusive list, but hopefully it provides you with a better understanding of your insurance contract. Every policy is different depending on the insurance company you are insured through, so it is always best to check with your broker if you have any questions regarding your specific policy.
Please ask us to help you make the right choice, as every situation is different. We will go over all of your options to help you choose the one that makes the most sense for you. Call us today 905-623-4406 and let us help you.