I came across a news story about an elderly woman battling cancer who learned recently that the standard practice isn’t always common knowledge in the home insurance business. She was stunned when she was stuck with an $11k damage repair bill after she left her home for treatment in the hospital.
During three weeks she was in the hospital, the pipes in her house froze and burst, causing water damage. But her home insurer denied her insurance claim, citing a clause in the policy that Canadians who leave their homes unattended for more than four days in the winter are not eligible for coverage for water damage unless they appoint a responsible person to check the heat inside every day.
We all agree the case is unfortunate, but the rules are the rules said the insurer while denying the claim. This is an exclusion on every personalized home insurance policy. It wasn’t the elderly woman’s plan to be in the hospital. Still no empathy.
This led me to take a few moments to lay out several standard exclusions that I am aware of, in every home policy, that aren’t always immediately clear, and that homeowners should be aware of.
Basic policies do not cover earthquakes
Unless you live in an earthquake zone, you probably opted not to buy extra coverage for this risk either in a separate policy or as an endorsement to your homeowner’s policy.
Not surprisingly, earthquakes are one of the few excluded perils under the standard homeowner’s policy. The one exception? If there’s a fire following the earthquake, and that fire damages your home, those fire related damages are covered.
These losses could involve claims for business interruption and additional living expenses as well. Cars and other vehicles are covered for earthquake damage under the comprehensive part of the auto insurance policy.
How much extra earthquake insurance costs depends on a variety of factors, including the cost of your home, the construction materials, the age of the house, and the location.
Sewer backups are not covered
Water damage is one of those areas of home insurance where there are plenty of exclusions and grey areas, and homeowners can often be unclear on what is covered and what is not.
Some types of water damage are covered under a standard homeowner’s insurance policy while others require that you add an optional coverage to receive benefits. Sewer back-up falls into the latter category. You can obtain coverage for sewer back-up in your home, but you may have to add an endorsement to your policy and pay an extra premium for the coverage.
To protect your home against water damage, keep your property well drained, pump septic system every 3-4 years, maintain the weeping tiles and clean eavestroughs regularly.
A flood, according to the Insurance Bureau of Canada, is defined as water flowing overland and seeping in through windows, doors and cracks.
While you can purchase extended water damage coverage with home policies, which covers things like a sump pump backup, flood insurance is not available with any Canadian insurance company. While coverage is offered for extended water damage, this does not cover accidental flood damage.
Don’t let house insurance take a holiday
The term vacancy in the insurance industry means that the occupant(s) has left the premises with no intent to return, regardless of the presence of furnishings.
This can happen if you’re a property owner whose rented house remains vacant while you’re trying to find new tenants, or if the homeowner has passed away and the home is up for sale. Called the 30 days vacancy rule, insurance companies will give you 30 days to notify them of the home vacancy, failure to do so could technically void your policy.
Policy conditions vary widely but there is typically no coverage for vandalism, theft, water escape, or glass damage starting on the first day of the vacancy. After the property has been vacant for 30 days, the entire policy becomes void, and there is no coverage for any damage, not even fire or windstorm.
If you’re a property owner whose rented house remains vacant for more than a month, your insurance company can deny coverage for any losses such as fire or water damage. The 30-day rule applies whether or not the customer is paying monthly insurance bills.
Owners can still obtain what’s called a vacancy permit from their insurer, so the coverage never ceases after the occupants have moved out. However, this add-on, which must be purchased within the 30 days, is typically limited to exclude malicious acts and vandalism, and your premium will increase.
That’s one of the more frustrating things to understand while your home is vacant; you’ll be getting less coverage and a higher cost, because when nobody is living in the house the possibility for a claim is much greater.
A primary difference between a vacant and an unoccupied property is whether furniture is inside, indicating the owner intends to return. Snowbirds, for instance, could still leave for months at a time, and their homes would be considered unoccupied.
Jewelry covered only up to a limit
Home insurance only covers for the theft or loss of precious jewelry up to a sub-limit that could end up vastly undervaluing such items. Some firms might offer coverage for up to $5 or $6k.
The cost of adding scheduled jewelry to your home insurance typically ranges from 1.5 to 2% of its appraised value. Because diamond jewelry tends to appreciate over time as diamond prices rise, insurance companies commonly require a new appraisal every five years.
It’s important to know your policies sub-limits, and if your items exceed your policy coverage to list them separately as extensions or floaters. Having your items listed separately could also provide broader coverage and reduced deductibles.
To do this, they would probably have to provide supporting documentation such as photographs to prove the worth of their high-valued possessions.
Make sure when you get your policy each valuable piece of jewelry you own has an agreed upon itemized value listed in the policy, so there is no conflict if you have to make a claim. Also, see if you can get a discount on your jewelry rider for storing your valuables in a safe deposit box or fire safe box.
Limitations for rare items
Things such as antiques, stamp collections and coin collections may not be fully covered under a traditional home insurance policy. Typically to have the full value of rare items covered, you must purchase an extension.
Limitations apply for items such as stamp collections (usually $1k) and coin collections (usually $500) unless extensions are obtained.
If the value of your precious possessions exceeds the limits in your home policy, you should strongly consider valuables coverage.
Even if the value falls under the limit in the home policy, you may still want to have a valuables policy. Unlike a home policy, it covers loss due to flood. Many people also appreciate the lack of a deductible when losing an item that often has sentimental value.
Maintenance exclusions
The intention of insurance isn’t to pay for your claims that resulted from poor upkeep. Though some natural hazards can’t have been avoided, other problems could have been taken care of in the first place.
For example, if there are cracks in your foundation or you haven’t replaced your shingles in over 30 years, this could result in a water claim. That would be a maintenance issue, not an insurance issue.
The same goes for damage inflicted by household pests. If critters have eaten away at the attic to the point where a new roof is needed, standard insurance won’t help much. Damage done by that raccoon, or a squirrel, or any sort of vermin to a person’s home has an exclusion there.
Home business
Your homeowner’s policy provides limited coverage for business equipment. This is a huge area that is commonly underinsured in most homes.
It is common for a lot of families to have a home office as a central hub for the family to do research and planning. But all those technological gadgets are expensive and most homeowners’ policies limit home office equipment to $1,000.
Make sure you tell your insurance agent about any expensive computers, fax machines, printers, and other communication devices and see what coverage you currently have.
Also, you are not covered for liability related to your home business if, for example, someone gets food poisoning through your catering business or if a student visiting your home trips and breaks an ankle while leaving a piano lesson.
If you run a business from home or have expensive office equipment, add an insurance rider so you can replace any damaged or stolen items if needed.
Upgrades could affect your policy
If you decide to renovate your home or install upgrades exceeding $10k, it’s a good idea to notify your broker so he can re-evaluate your home.
If you’re adding living space by finishing your basement, you’re adding value and costs. Extensive alternations can change the policy classification, bump up the replacement cost of your home, or raise premiums.
Also, in the event of a claim if the insurance company discovers that you have a much bigger or better home than you said you did, this could be classified as a change in risk. This could result in the claim not being paid, your policy being cancelled, or a reduced settlement.
You should let the insurance company know you’ve updated the countertops, put in natural stone or upgraded the cabinetry.
The bottom line
Insurance brokers strongly recommend homeowners carefully dig into their property insurance policies to find out what they’re covered for. Anyone with questions can also consult the Insurance Bureau of Canada or take up grievances with the General Insurance Ombudsman service.
Further, consider the use of a true broker and not one directly affiliated with a financial institution. They work for you and can ensure your policies are accurate, fairly priced, and designed for your own specific needs. That’s the right approach in Keeping Life Current.
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