Does home insurance cover flooding from groundwater? Do you pay a deductible on home liability insurance? And just how much liability insurance do you have and need?
Let’s face it: Most people read their insurance policies about as well as they read the end user license agreement when they download software. Which is to say they don’t. This can be very costly as what you don’t know can hurt you, in the pocket book when you need to make a claim and find out you aren’t covered.
Home insurance policies don’t cover damage due to wear and tear and neglect but also exclude a number of potentially expensive claims that you may think you are covered for such as certain instances of home vacancy, dog bites and damage caused by your home business among others.
Different insurers and policies have varying rules as to what is included and excluded and this is further impacted by where you live since certain weather conditions may also be excluded that you need to know about.
What does my home insurance cover?
In general terms home insurance policies typically cover:
Building: The building (house) itself including all fixtures and attached structures, any equipment permanently installed on the property including a pool, hot tub and materials and supplies located on the property that will be used to maintain or repair your building.
Loss or damage: The policy will cover physical loss or damage to the building. Common reasons include wind & hail damage, fire and lighting, water damage and freezing, theft, liability and others.
Note: Don’t be surprised if your homeowner’s policy does not cover freezing pipes and subsequent water damage when your home is left vacant for a period of time (i.e. 30 days) even if your policy covers your home when vacant. Other insurers may cover the damage if certain specific conditions are met i.e. someone was physically checking on the home while it was vacant, the main water line was shut off, etc.
The devil is in the details as they say and in this case, that means the small print. More specifically this refers to exclusions, things that are not included in the policy in terms of what is not covered should you need to make a claim.
Let’s take a closer look at each aspect of insurance as it pertains to home insurance and what you might require coverage for.
Home insurance coverage letter classifications
Home insurance is classified with 6 letter categories that specify various forms of coverage that are offered. It’s important to note that your standard policy may not include all categories and you may need to specify and pay extra for certain ones to meet your needs.
Let’s take a look at each to ensure you understand what is available and what you may require.
Category A
This is dwelling insurance which is the main part of any home insurance policy. It covers your house itself and the important aspects of it such as the walls, floors, roof and anything that forms the structure of the home. Understand the difference between the replacement value of the home (how much would it cost to actually rebuild the home should it be completely destroyed) and actual cash value coverage (replacement cost minus depreciation).
Replacement cost typically covers more because it would result in a new home being built to replace the one that was destroyed using current materials that may be better quality and more modern than the ones they replace.
Category B
This refers to Other Structures coverage. Other structures could include things such as a pool, gazebo, unattached garage, fence, storage shed or other structure not specifically included in Category A that are damaged due to a covered peril (ie. fire, hail, theft, vandalism, etc).
An industry rule of thumb is that your Coverage B coverage should not exceed around 10% of the coverage contained in your Coverage A although individual insurers may have their own rules and limits. It depends on what you actually own that would fall under Coverage A and the value and cost to replace each.
Category C
This refers to Personal Property Insurance. Personal property typically includes anything in your home that you could take out of the house like furniture, appliances, clothes, electronics and so on. Common perils that are covered include theft, vandalism, fire, tornadoes, hurricanes and others. It’s important to get this coverage correct because you don’t want to be under covered for valuables like jewelry but on the other hand don’t want to be over covered and pay too much for insurance you don’t actually need.
Do an inventory of what you own that falls into this category and document (make photos, keep a spreadsheet and itemize everything) of anything that you need coverage for. Determine the value of each item. Typically customers choose 50% – 70% of the coverage they have for Category A but your situation may differ.
Category D
This refers to Loss of Use coverage. This provides additional living expenses while your home is being rebuilt or repaired due to a covered peril. While this coverage is important for people who live in areas susceptible to natural disasters and other weather-related catastrophes, it’s a consideration for other homeowners too.
It protects in the instance where your home can’t be lived in perhaps due to damage caused by a fire, windstorm or vandalism. It usually includes the cost of lodging, food, laundry and other basic living expenses that you need to incur while you are out of your home. It’s important to note that flooding would typically not be covered and may require a separate policy addition.
Other common reasons for a home being uninhabitable could be a gas leak or broken furnace in winter but you’d have to check with your insurer to see what possible instances are and aren’t covered.
Category E
This is Personal Liability Insurance. This protects you in the instance where someone is injured on your property or you hurt someone and are held liable for personal and/or property damage.
Personal liability coverage through an insurer may be capped at an amount such as $500,000 unless you choose Umbrella coverage which increases the limits for coverage and typically covers all residents who live in your household in case they are the ones held liable. Umbrella liability coverage can protect against costly lawsuits and medical bills that may arise if you are held liable for an injury.
The single most common and expensive liability claim is due to dog bites.
Category F
This refers to Medical Payments Insurance. This insurance covers you against third-party injuries on your property before they turn into a more costly lawsuit against you. This level of coverage is typically low and is used to cover you against a minor injury suffered by someone visiting you who isn’t part of your household such as an ankle sprain or fracture from a fall in your home.
Common home insurance exclusions
While specific insurers and policies may exclude more than others, here are some common home insurance exclusions:
- Wear & tear and natural deterioration of aspects of the property that typically happen over time.
- Damage caused by a business operated from home.
- Dog bites or other damage caused by a pet.
- Intentional, fraudulent or criminal activity and proceeds from crime.
- War, invasion, terrorism, civil war, rebellion, revolution or military power.
- Damage (ie. frozen pipes) when the property has been left vacant for a period of time ie. 30 consecutive days.
- Damage caused when the home is being built as this should be covered by the builder’s insurance policy.
- When the home is empty while being renovated.
- Contamination from radioactive material or damage caused by a nuclear incident.
- Wet or dry rot, fungus, mold, acid rain, smog and others.
- Property of people who do not live at the home.
- Fine art, jewellery and watches, precious stones.
- Cash, bullion and negotiables.
- Coastal floods or damage from ground water or rising of the water table.
- Flooding that is caused by water seeping in through the foundation, slow plumbing leaks or leaks that were caused by negligence (i.e. repairs that should have been done that you neglected).
- Water damage caused by freezing when the home was empty for a period of time unless certain conditions were met ie. main water line was shut off, etc.
- Detached structures, fences and landscaping.
Check your policy to be sure. Each case may be different and your specific insurer and area you live in can also impact your coverage. Major insurance claims are often due to natural disasters like floods, hurricanes, tornadoes and the like and in some cases, you may require additional (paid) insurance over top of your normal policy to be covered.
Flood damage is often a separate addition to your policy and would cover you against an actual flood where water enters the house from outside over a period of time. This is as opposed to a sudden flood caused by a burst water pipe or hose or another water problem inside the home that is typically covered by your existing homeowner’s policy.
Common home insurance coverage that needs to be added on
There are a number of aspects of home insurance where coverage can be included but at an extra cost or with a separate policy. In other words, the coverage can be included but it’s not automatic and not currently part of your standard policy.
Popular examples are:
Pet liability
Dog bites are the popular example here. Some policies exclude dog bite coverage although there are some insurers who specifically offer pet liability insurance and may bundle it with pet health insurance too. Some insurers may cancel your insurance after a dog bite incident and some insurers prevent specific breeds of dogs from being covered.
Having dog liability insurance might also increase your current premium when it is added on.
Tenant insurance
If you rent your home out to a tenant, you will need to inform your insurer before the renter moves in so they can change your coverage to a landlord policy. This will probably increase your premium as a result but will specify different things that wouldn’t apply if you were occupying the unit yourself.
The policy will be amended to make specific statements regarding protecting your property and that the coverage is for you the homeowner and not the tenant. Your landlord policy will specify that the coverage exists only for your tenant but that they are not allowed to sublet the unit or use it for running a home business.
It’s up to the tenant to get their own liability and contents insurance. You should specify to your tenant that they get their own contents and liability insurance if your local landlord and tenant laws allows you to request it.
Detached structures, fences and landscaping
This may include a pool, storage shed, cabana or gazebo that is not attached to the house. Some insurers may add this as additional paid coverage. Other insurers may limit coverage to an amount but specifically exclude certain things such as landscaping errors or damage to your fence from a lawnmower or disrepair and things of that nature.
If you have a pool, you should also inquire about specific liability coverage especially if people outside your household use the pool. Another common item that homeowner’s should be aware of is if they own a trampoline. Due to the chance of injury, some insurers want to know if you have one and others may not cover it.
Legal protection coverage
This is often another paid addition that will cover legal expenses and advice should the need arise. Commonly this is an option to think about if you rent your property out and may require legal advice regarding a landlord and tenant issue such as eviction or damage or liability caused by your renter. This coverage would also benefit a homeowner if you have a dispute with your neighbor or someone else.
Emergency coverage
This could include the instance where you are unable to occupy your home due to a drain blockage or a broken furnace that typically wouldn’t be included in your regular policy. There could be other specific instances where a peril is covered that may benefit you.
Identity fraud coverage
Identity fraud is an increasing problem but coverage may only help you for legal expenses related to fixing the problem. Typically credit card issuers don’t hold you responsible for charges you didn’t make.
Having said that, title fraud is also a big concern and that has separate coverage that involves a different form of insurance altogether.
Does insurance cover riot damage?
Rioting, looting and vandalism are all perils that are typically covered by home insurance policies. While the latter two coverages are ones people making insurance claims may have to deal with, rioting is generally not one that most people have even considered until recently. Events around the world in 2020 and 2021 may cause people to reconsider that and double check their coverage.
When you look at the (incomplete) list above, consider that in the recent past the average person in America and many western countries wouldn’t have thought twice about clauses related to terrorism, rebellion, revolution and things of that nature. Following the events of 9/11 terrorism was generally excluded specifically by insurers.
Due to events both man-made and natural that occur, insurers often incur billion dollar liabilities without prior warning. Consequently insurers may choose to redefine and tighten up coverage to limit their liability in the future. This is typically noticed the following year when your policy is due for renewal.
With the events and fallout from COVID-19 how could insurers react based on the number of people working from home? This has an impact on use of the home for business purposes, to name but one concern.
Summary
The most important thing you can do is read your policy from start to finish to ensure you understand what is covered and what isn’t. Contact the insurer directly for further clarification. Ask your broker for help if needed and for a second opinion or advice.
To answer the the questions posed at the beginning of the article:
Does home insurance cover flooding from groundwater? Typically no.
Do you pay a deductible on home liability insurance? No.
And just how much liability insurance do you have and need? Check your policy to see what you’re covered for and check with your broker to see what level makes sense for you.
Be sure: Read your policy over word for word to ensure this is the case in your specific circumstances.