Understanding Homeowners Insurance Exclusions

When you buy a house, you will likely have to buy homeowners insurance, too. Most lenders require it because it can help you afford to rebuild your home and protect its value following an accident or other hazard. However, while you might think your policy will cover damage of all kinds, that isn’t always true. Most policies limit the scenarios in which they will compensate you and how much they will pay. It’s important to review your policy to see how it addresses exclusions and limits.

What is an exclusion?

Homeowners insurance exclusions come in various shapes and sizes. For example, your policy might not cover damage to certain items. Other exclusions relieve your policy from paying for damage from certain hazards.

Also, your policy will always limit how much money you can receive for a settlement. So, when enrolling, talk to your agent to learn more about its exclusions and limits. There often are ways to get around these terms.

Policy Limits

Your policy might not agree to pay you 100% of the cost of any damaged property.

• Most policies include deductibles on structure and possessions insurance. The deductible is a value that your insurer will subtract from your final settlement. If the cost of your damage is less than the deductible cost on the policy, then your coverage won’t pay at all.
• You might only receive reimbursement based on items’ actual cash value. This is an item’s value at the time of the loss, not the cost of a new item.
• Certain items like foliage, outdoor furniture or specialty items might have no coverage.

To get more coverage, you might buy a replacement cost policy either for all assets or for specific items. It pays you the price of a comparable, new item. Remember though, your policy will never pay more than the limits defined in your policy. Having $300,000 in structure coverage will only entitle you to $300,000 total for structural damage, for instance.

Peril Exclusions

Policyholders usually expect policies to pay for damage from fire, weather, vandalism or other hazards. However, depending on policy wording, not all events will have coverage.

• Some policies only cover named perils. So, only the hazards listed on your policy will cover the damage costs.
• Other policies insure all perils except for a list of defined perils. So, if your policy lists a peril, it will not have coverage. Anything not listed will, however.

Damage from certain perils like floods or earthquakes have exclusions under most homeowners insurance. You’ll need to look for special policies if you live in areas prone to these risks.

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