The short answer is, there is no short answer. While the provisions of insurance policies are usually goverened by state law and are based on standardized “ISO” forms, each polcy can contain substantially different coverages. What is most important to understand as a homeowner is what your homeowner’s insurace policy does not cover. As a property insurance adjuster my experience has been that this is more difficult to understand than most people care to realize.
The first step is understanding that an insurance policy is a contract. As such it is governed by contract law. Regardless of the fact that the sales agent assured you that you had “full coverage” the rights and responsibilities of the parties are spelled out explicitly in the four corners of the contract – i.e. the policy.
And, chances are, there are some rights and responsibilities in that contract that don’t quite coincide with your idea of “full coverage.”
There are different types of homeowner’s insurance, different levels of coverage, and different “perks” offered for the premium policies with most insurers. For the most part, though, the basic policies are based on standard forms known as ISO policies.
There are two general categories of coverages under most homeowner’s policies – property coverages and liability coverages, though some policies, referred to as “fire policies” do not provide liability coverage.
The liability coverage provides coverage under certain circumstances when the policyholder becomes legally liable to another party for some form of damages. For instance, if Fido bites the door-to-door salesman’s leg, Fido’s owner’s homeowner’s insurance may provide coverage for the lawsuit the salesman is likely to bring. (and Fido’s owner will likely be dropped by the insurer – bad risk, biting dogs)
The property coverage is further divided a couple of different ways. First, there is the distinction between “real property” and “personal property.” Real property is the building and permanent fixtures in the building(s) and on the land, whereas personal property is all that stuff you have that you would take with you when you move. Finer distinctions come into play in areas like window treatments – blinds are part of the real property, but draperies are personal property, etc.
Next, property coverages are distinguished as either “open peril” or “named peril” coverages. THIS IS A VERY IMPORTANT DISTINCTION.
Named peril coverage means that a loss is covered by the policy ONLY IF IT WAS CAUSED BY A PERIL LISTED in the policy. This is very limited coverage. The standard ISO HO-3 homeowner’s policy has 17 named perils for personal property. Sewer back-up is not one of them, but vehicle damage is. This means that if water backs-up through your basement drains and destroys all of the priceless antiques (read “old junk”) you have stored down there, no coverage. However, if Jimmy Drunk drives through the side of your garage and destroys all of your lawn tools, you’re covered for that – it is vehicle damage.
Open perils means simply that the loss is covered no matter what. Well, not quite no matter what – it IS covered SO LONG AS it is not SPECIFICALLY EXCLUDED under the policy. This is the part under which the homeowner tells the adjuster “but my agent told me I have full coverage!” YES, you have full coverage, but for those three pages of exclusions, which just so happen to exclude an awful lot ot the kind of stuff that goes wrong with homes.
Its not that the insurance companies are trying to get out of paying for anything. Indeed, homeowner’s insurance is an important and invaluable tool for risk management. But is is only that – “risk management,” not absolute risk protection. If you look at your home and think about what maintenance you may need to do to it over the next 30 to 50 years, you can start to understand the kinds of things that open peril insurance excludes. Now, if you think about what is “likely to happen” statistically speaking, you can start to get a handle on the rest of the things that open peril insurance excludes.
Here are a few examples – and these are areas yo want to stay away from making a claim for, lest the adjuster’s inspection is grounds for dropping your insurance:
– any wear and tear items are not covered. Age and deterioration are not covered. If you call in a claim on these types of things, the adjuster will note that your home is in a state of disrepair – you are higher risk for not taking good care of the property.
– water seepage in basements. Think about it. This is subgrade, so it is not a matter of IF water will seep or flood, it is rather a matter of WHEN. The policy is written accordingly. (unless you have an old policy with a grandfathered in “back-up” rider for basement flooding).
– if your roof needs replacing because it is old or worn out, no coverage. Interestingly, though, if you have a leak, there may be coverage for the interior water damage. This gets into the notion of “fortuitous” which I won’t belabor here. Suffice it to say that if your plaster ceiling is black and green with mold and fungus, it is not “fortuitous” and you will not likely be covered, but if the damage is fresh, newly discovered water damage from last night’s storm, you should have coverage to dry the inside out, remove and replace the wet insulation, repair the water damaged plaster/drywall, move the furniture and repaint!
Some additional items of note – if you have a significant claim, such as a fire loss, work with your adjuster as much as you can. Despite the general opinion that they are only trying to cut costs, we are more often than not willing to do our best to ensure you get the best results that your policy can provide. An experienced adjusters knows the scam “insurance restoration specialists” in your area, and can help you get the best value out of the available insurance dollars.
This can not be over-emphasized. I have personally worked with contractor’s who have performed $20,000 worth of restoration services for a mere $140,000.00. Once the homeowner signs up with a contractor, all I can do is tell the homeowner what the insurance proceeds will be and write the check. Whose pocket it ends up in is out of my hands.
Be wary of “public adjusters.” This is an anomaly of a job – it is like going to a personal injury attorney when you’ve been injured in an auto accident. Only, public adjusters are not attorneys, so they can’t represent your legal interests. So what do you get when you sign up with a public adjuster? You get to split the insurance check with someone who may provide no benefit whatsoever. BEFORE you sign on with a public adjuster, make sure you have a good understanding of what value he or she can add to the claim. My experience with public adjusters has led me to believe that they have failed at making a living as used matress salespersons and are trying to make enough money to get by under any scam that presents an opportunity.