Top 5 Most Common Home Insurance Coverage Gaps & Unexpected Expenses

Homeowners insurance can be a financial lifesaver if your home is damaged or destroyed by a covered peril. However, there can be coverage gaps that can leave a homeowners covering repair bills out of their own pocket if the damage exceeds their coverage levels or the policy has an unexpected deductible. 

We thought it might be a good idea to look at some of the most common coverage gaps and unexpected expenses that homeowners may experience after a natural disaster or other claim event.

Being Underinsured

If your home is insured for the market value, and not the replacement value, you may be underinsured which means that your coverage levels will not be enough to fully repair or rebuild your property in the event of a natural disaster. According to industry experts, the average home is underinsured by 22% but in some cases, homeowners may be underinsured by up to 60% which can leave you footing a major portion of the rebuilding or repair costs. 

Check your policy and have your agent recalculate your rebuilding cost and make sure your policy coverage levels are adequate.

High Deductibles for Wind or Hurricanes

Insurers have been moving to higher deductibles for hurricanes, as well as wind and hail damage. Disaster deductibles can range from 1% up to 25% of your coverage levels. Most policies fall in the 1% to 5% range which means that if you are carrying $400,000 in coverage your deductible could end up being $4,000 to $20,000.

Unless you can easily afford these types of deductibles you may want to shop your policy for one that comes with set deductibles. In most cases, the premium may be higher with a set deductible and in some areas a percentage deductible may be your only choice. Always choose a policy that comes with an affordable deductible. 

Depreciation of your Home

If your home is insured with an actual cash value policy instead of a replacement value policy, the depreciation your home experiences over the years may end up costing you money.

As the roof, HVAC or other major systems of your home age, your policy may not cover the full replacement value of the items if they are destroyed or damaged. A cash value policy takes depreciation into account when determining the value of your claim which means the payout on your 10-year-old roof will not be enough to cover the cost of a new one, leaving you to cover the balance. A replacement policy will cover the cost of a new roof, regardless of how old your current roof is when it is destroyed or damaged. 

Exclusions or Limited Coverage

Shockingly, many homeowners are unaware that certain damage is excluded from their homeowners policy. Flood damage is almost always excluded from a standard homeowner policy as is earthquake damage. 

In order for flood or earthquake damage to be covered you must be carrying a flood and/or earthquake policy. Flood insurance can be purchased via the National Flood Insurance Program or in the private market.

If you have the extreme bad luck to have damage by two different causes at the same time, there may be an issue with coverage. Many policies have an anti-concurrent causation section that basically says if two disasters happen at the same time, you only may be covered for the damage from one of them. 

Read Your Policy

The best advice is to always make sure you know exactly what your policy covers as well as what your deductibles are for each type of disaster. It is also a good idea to be aware of all exclusions in coverage contained in the policy. 

If you find coverage gaps or exclusions that you are uncomfortable with, work with your agent to fill the gap with the appropriate policy.