6 Costly Gaps in Your Home Insurance Policy

Most Americans don’t realize that their policies leave them exposed to a range of unexpected costs.


Earthquakes, unexpected deductibles, and flooding are just a few of the costs your homeowners policy might not cover. But if you’re like most Americans, you probably don’t realize it. According to the MetLife Auto & Home Insurance Literacy Survey, many homeowners are clueless about the ins and outs of their policies, which means they could easily end up paying a lot more money than they expected after damage to their home.

[See 8 Painless Ways to Save Money.]

Almost half of all homeowners surveyed didn’t know how much insurance coverage they had for the contents of their home, and one in three didn’t know how much their home was insured for. MetLife warns that this “knowledge gap” can lead to costly surprises and recommends that homeowners review their policies more closely.

Here’s a quick way to test your knowledge on six common coverage gaps:

Do you think your insurance policy would reimburse you for earthquake damage?

The answer, according to MetLife, is almost always “no,” unless you purchased a separate earthquake policy. Almost 30 percent of survey respondents thought the answer was “yes,” and another 30 percent didn’t know.

If your sump pump backs-up and your house floods as a result, will your homeowners insurance policy reimburse you for the damage?

Despite the fact that most people believe the answer is “yes,” it is unfortunately not the case. That means homeowners could have to shell out cash for costly repairs, unless they specifically added (and paid extra for) coverage for sump-pump failures.

[Visit the U.S. News Personal Finance site for more insight and money management tips.]

If new building codes mean you need to upgrade undamaged parts of your house, will your policy reimburse you for those costs?

While nearly two in three survey respondents said “yes,” the answer is “no,” according to MetLife. In most cases, policies don’t pay for upgrades, even those that are mandated by new laws, in undamaged parts of homes, unless you take out additional “ordinance or law” coverage.

If you go away for the winter and your pipes freeze and break, will your policy cover that damage?

While policies remain valid even when you’re on vacation or away for a long time, you have to take certain steps to protect your home, or you might be liable for the costs. For example, if you fail to keep the home heated or pipes drained, MetLife explains that any damage that results from freezing might not be covered.

Say you have auto and home insurance with the same company, and both get damaged in a tornado. Will you pay one deductible or two separate ones for each item?

Chances all you need to pay two deductibles, even if both the house and car are damaged by the same storm. (Although MetLife adds that a handful of insurance companies, including MetLife itself, offer exceptions to this rule.)

[For more money-saving tips, visit the U.S. News Alpha Consumer blog.]

If a fire destroys your house, will insurance pay the full cost to rebuild?

The answer is most likely “no,” because most insurance policies cap their coverage – and take depreciation into account when calculating the value of personal possessions. That means homeowners could be insured for far less than they think. Seven in ten survey respondents said they thought their policy would pay the full cost to rebuild after a natural disaster.

While these gaps could end up costing homeowners a lot of money, policies also provide coverage that many people don’t realize they have. For example, policies usually cover the belongings of college students (the sons and daughters of policy holders) who live on campus. They also often cover electronic data (including music) and damage to appliances caused by a power surge.

The bottom line? Policies vary, and if you have a particular concern, it’s usually relatively easy to add additional coverage to your existing policy – as long as you know about the risk before any damage takes place.

Kimberly Palmer is the author of the new book Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back.