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You're Not Insured for These Calamities

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Home insurance covers many kinds of disasters -- but not all of them. Most policies will protect you against losses due to fire, lightning, wind and hail, riots, volcanoes, vandalism, smoke, and even airplanes crashing into your home, among many other mishaps. But there are plenty of other pitfalls for which you're on your own.

Sorry, Charlie
Common exclusions include losses due to acts of war, nuclear events, termite damage, government seizures of property, power outages, water seeping into your basement, or sinkholes that swallow your home.

You're not always out of luck, though. Some of these excluded losses can be included in your policy, if you pay a little more. Earthquake-related damage, for instance, is typically excluded from most policies, but you can pay your insurer a little more to add it to yours. It's the same with losses you may incur if a sewer backs up into your home. Floods are also not generally covered -- you'll need to purchase separate flood insurance if you're worried about flood damage. Even dog bite liability, which is increasingly being excluded from some policies, can be added.

Your lawn is often covered, but frequently for no more than $500, and while damage from fire or explosions or vandalism may be covered, damage from flooding or a pool overflowing may not. The increasingly airtight construction of homes has contributed to mold growth in homes (though it often exists for plenty of other reasons), and we're more aware of the dangers of mold than we used to be. But insurers have grown more aware of it, too, and mold-related losses are increasingly not covered in policies.

If you have a home business, such as a hair salon, carpentry shop, day care, or therapist office, it won't normally be covered in a homeowner policy, and will require a separate policy. You might be able to add a simple home office to your home coverage, though.

The negligence factor
While many losses clearly fall into the covered or not-covered category, there's also a little grey area related to negligence. If a pipe in your home bursts one winter, causing water damage, you may be covered. But if you had been away from your home for a week, and didn't leave the heat on in the house, your insurer will likely consider that negligence, and deny your claim. If you suffer damage from a pipe or valve that has leaked for many years, your insurer will likely argue that you should have had that repaired long ago.

Insurers tend to protect you mostly from sudden and accidental losses, not from slow-moving ones that you might have prevented. Home maintenance costs are generally not covered. If your roof is in poor shape, and water leaks in to cause damage, your property losses may be covered, but you'll have to pay to fix the roof yourself -- that's a pure maintenance issue. Similarly, if you suffer a loss of property because of shoddy construction or repairs, that's typically not covered. Someone was negligent, so the insurer won't pay.

Even fire can fall under negligence. Imagine that in your community, you're required to pay an annual fee for firefighter protection. If you fail to do so, and your home burns down, your insurer can claim that you were negligent in protecting your home by not paying the fee. This should drive home the critical importance of not being negligent: Skipping a $75 fee might cost you a $250,000 home.

Take responsibility -- and action
Even those who are covered may discover -- when it's too late -- that they haven't been carrying enough coverage. You may be covered for a calamity that befalls you, such as a fire, but if your coverage is for $225,000 and your home's value is now $260,000, you'll face a painful shortfall. When you renew your insurance each year, be sure that you're carrying sufficient coverage. Also, look into whether your coverage will replace your losses, whatever the cost, or if it will only compensate you for their depreciated values.

You should have the coverage you want and need, but it's up to you to make that happen. Take a little time to decide which dangers you want to be sure you're protected against. Then see whether you're covered for them -- and what you can do about it.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 21, 2010, at 12:54 PM, tenderloin32 wrote:

    it may be more accurate to say your replacement cost rather than home value. In a claim it may well cost more than the current value to replace your home or in some instances the home value will have no bearing what so ever as to the settlement amount offered by an insurance company. A mortgage company may well require a home to be covered for the purchase price but an insurance company is only required to replace what was lost no matter how much coverage is available or up to the limit in the policy. Although it is impossible to determine an exact number, it is easier to negotiate over coverage you have rather than fight over the problem of being under insured. Understanding what exactly is covered or not covered can prevent much heartache. Get educated!

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Selena Maranjian
TMFSelena

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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