Do you know what your homeowner’s insurance policy covers should you file a claim in 2013? Yes, it’s not exciting, but with more insurers are inserting provisions to shift risk and costs to homeowners, a careful read is more important than ever, say the experts at the Consumer Federation of America (CFA) and United Policyholders (UP).
It’s also a time saver. “Superstorm Sandy revealed many of the problems homeowners may encounter when navigating the claims process after a natural disaster,” says J. Robert Hunter, Director of Insurance at the Consumer Federation of America.
Here are the top seven trouble spots to look for in your policy:
1. Most homeowner’s insurance policies contain exclusions for floods, earthquakes or landslides. In most parts of the United States, insurance policies do not include coverage for losses caused by these events. Determine if you are in high-risk zones and need a rider by checking flood and earthquake maps.
2. Different deductibles can result in unexpected out-of-pocket costs. Most insurance policies have at least two different deductibles that apply a flat dollar amount for most losses and another, higher deductible that applies if the loss is related to high winds. That’s a chunk of change you may not be prepared to pay after a tornado.
3. Hidden clauses can result in reduced or denied claims, even for legitimate claims. Homeowners should check their policies to see if they include a little-known provision called an anti-concurrent-causation clause. This confusing clause may result in a denial of claim if a structure is damaged about the same time by two risks, one of which is covered (like wind), while the other is not (like flood). If your property is damaged or destroyed by two causes acting together (e.g. wind and flood), such a clause can limit or even negate your coverage for all of the damage, even if one of the perils would have been covered had it been the only cause.
4. Demand surge may leave some homeowners unable to replace their homes. After a major loss, many homeowners are often shocked to learn that their policy does not cover the full amount of the damage and that they may face substantial out-of-pocket costs. A homeowner’s policy may be limited to only the amount stated in the policy or for a small percentage more rather than full replacement. When a disaster strikes, building costs rise (a.k.a. “demand surge”). Combine these two events, and it could leave you high and dry… uh, short of funds, that is.
5. Policies may not cover mold damage or high-value items. Ah, more exclusions. Homeowners’ policies often limit or exclude coverage for mold damage, non-flood water damage, computers, business property, art, food spoilage and many other specific items.
6. Building code compliance increases costs and is not always covered. As with No. 4, some policies exclude additional costs if a local construction ordinance or building code requires upgrades, such as elevating your home to comply with flood codes. This coverage needs to be purchased separately, as an add-on to the basic policy.
7. Prices vary and homeowners should always comparison shop. You should compare prices if you experience a large rate increase, and shop around regardless, at least once every three years. Many insurers raise rates for long-term policyholders if they believe that they are not price-sensitive and unlikely to shop.
“There are new exclusions in property insurance policies today that consumers are not aware of that can blow their financial security to shreds after a serious loss,” warns Amy Bach, Executive Director of United Policyholders. “We recommend that every homeowner conduct a careful review of their policies and contact their agent or insurer to ensure they have the coverage they need and expect.”
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