When the Earth Eats Your Home
Homeowners insurance is one way to protect what may be your biggest investment, but a standard policy may not cover some things you thought it would.
Flooding is typically not covered under a standard policy, it often requires an additional policy.
Lots of other events may not be covered, including earthquakes, sinkholes, or even renting out your space on a peer-to-peer short term rental platform.
Chances are, if you have a mortgage, part of your monthly payment includes some contribution to categories other than principal (the actual money you borrowed) and interest (what you're paying a lender to let you use that money).
"Escrow" is a separate category you may contribute to each month that likely includes property insurance.
Why insurance? The National Association of Insurance Commissioners cites two reasons: It protects you against the loss of your home to damage (and in case you're sued by someone hurt on your property). And if you have a mortgage loan, your lender probably requires you to have it as a condition of the loan.
There are plenty of mishaps that can impact your property. Think beyond fire or a lightning strike and imagine stuff falling out of the sky, floods, earthquakes, even volcanic eruptions. (If you grew up watching TV in the '60s or '70s, you probably figured quicksand would be a considerable problem at some point).
But there's a surprising number of things that may not covered by a standard property insurance policy.
Flooding: According to the Federal Emergency Management Agency (FEMA), floods are the most common and costly natural disaster, and they typically are not covered by homeowners insurance. More than 20 percent of flood claims are filed on properties outside a high risk flood zone. The agency reports even one inch of flooding can cause $27,000 in damage … or more.
Hurricanes: First, see flooding above. Right, that applies in hurricanes. Next, wind damage. The Insurance Information Institute reports after Hurricane Andrew in 1992 insurers realized hurricane losses could be worse than expected. So they began instituting wind deductibles, which can be substantially higher than your standard deductible of $500 or $1,000, because they are "percentage" deductibles, such as 1, 5, or even 10 percent of the value of the home. That's if you can get insurance on the open market. Florida and Texas had to create public insurance providers to serve those who couldn't get a private sector policy.
Mine Subsidence: If your home is built on top of an old mine (say a coal mine in Pennsylvania) and the tunnel collapses, damaging your home, a standard homeowners insurance policy probably won't cover you. The state of Pennsylvania reports more than 1 million homes in the state are built on top of abandoned mines. According to Pennsylvania, coverage is voluntary and affordable (for example, $200,000 coverage for $107.50 a year). Are you in an area where there is, or has been, mining activity? http://www.dep.state.pa.us/MSIHomeowners
Sinkholes: Coverage for when the earth swallows your home (or just damages your foundation) may not be included in homeowners insurance. The Florida Department of Financial Services, in the state that has the most sinkholes in the country, says insurance companies there must "offer" 00protection, but it usually costs more. In 2017, a sinkhole in Pasco County, Florida, swallowed a neighborhood. And in 2013 a sinkhole east of Tampa opened under a sleeping man's bedroom. His body was never recovered.
Earthquakes: The National Association of Insurance Commissioners (NAIC) says it's a common misconception to believe earthquake coverage is included in a policy. That's a problem, because it's not just California at risk of jolt. About 143 million people in 48 states are at risk of earthquake damage. The NAIC says less than 30% of homeowners in earthquake prone areas have earthquake insurance.
Nuclear reaction and radiation: Live near Mr. Burns' Springfield Nuclear Power Plant? If you wake up to find that bathroom nightlight is actually a glowing wall, or someone (Mr. Burns) has ordered radioactive waste buried in the kids' sandbox, you're probably not covered, according to the International Risk Management Institute, which develops insurance industry guides and hosts industry conferences.
Acts of war: If you're still waiting for the Rooskies to drop the big one, you might want to check your homeowners policy. HouseLogic.com, a website published by the National Association of Realtors®, reports most policies exclude acts of war. The good news is you might have coverage for an act of terrorism, but those claims may be handled on a case-by-case basis.
Volcanoes and lava: In the news a good bit in 2018, lava looks like it could be tricky. Large property insurer State Farm says a volcanic eruption is kinda sorta covered. The company says most policies cover loss from volcanic eruption when it's the result of a blast, airborne shock wave, ash, dust, or lava. But the company warns that most policies don't cover damage from earthquakes, mudslides, landslides, other land movement or flooding. If you live in an area prone to volcanic eruptions, you may want to review your policy.
Nasty houseguests: So-called "peer-to-peer" home or room rentals (looking at you, Airbnb) have become popular. No disaster there, right? What if your guest starts a fire or gets hurt on your property? The Insurance Information Institute says better check with your agent before handing over the keys. The insurer may consider this a business and require business insurance.
If you're required by your lender to have property insurance (and it's probably a good idea to have that protection anyway), you may want to check to see if you're fully protected. Your insurance professional can help you understand your policy and your coverage.