The recent news of damage and destruction wrought by superstorm Sandy with damage in New York City, Washington DC, Baltimore, Philadelphia, Chicago and several other cities has hopefully served as a wake-up call to homeowners across the country. According to an article by The Sun Chronicle, homeowners affected by the storm are finding significant losses not covered by their home insurance policies. It’s not necessarily a failing of the policy, as they can only cover what they state is covered. The problem arises when homeowners do not have a fundamental understanding of their home insurance policies. Unrealistic expectations generally lead to insufficient coverage and expensive disappointment after a loss. Here’s a quick primer on the things you should look for when reviewing your policy.
First and foremost, you should understand that your home insurance policy is composed of two main types of coverage: first party property and third party liability. The first party coverage is damage you suffer and is resolved directly with your insurance company. Third party coverage is damage or injury to others as a result of your actions and your insurance company resolves these claims directly with the third party. For the purposes of this article, we will focus on the first party coverages in your home insurance policy.
The two main coverages in your policy are the dwelling and personal property. The dwelling is generally defined as your primary living space and other buildings attached to it. Sometimes it will extend to surrounding buildings such as a detached garage or storage shed. Personal property is just about everything else you own inside the home, but is not permanently affixed to the dwelling. Everything is covered for damage as a result of specific perils, or causes of loss. This is important to review as your policy may not cover some perils that will likely result in loss to your dwelling or personal property. For example, flood and earthquake are generally excluded from standard home insurance policies. It’s possible to buy separate coverage for these two perils, but they are not automatically included in your standard policy.
In addition to physical loss or damage of your dwelling or personal property, your policy may provide coverage for loss of use. This is a very beneficial coverage that is often overlooked by homeowners. If you are unable to live in your home after a loss, your insurance can cover your additional living expenses. This ranges from the cost to rent another home or hotel room to the additional cost of eating out. You should give this serious consideration and ensure that you have a sufficient limit to cover you for the time it will take to repair your home. After a major disaster, recovery periods are longer than usual because there is an unusually high demand on labor and materials to rebuild.
There are some other benefits of your home insurance policy known as “Additional Coverages” that cover expenses such as debris removal and spoiled food as a result of loss of electricity. However, the inclusion of these additional coverages tends to have small standard limits of coverage. If you believe you may need more coverage, it will be necessary to discuss a higher limit with your insurance company.
Now is a good time to review your policy in light of the recent events. Try to visualize a similar scenario with your own home and determine if you have enough coverage. Read through your policy carefully and see if you have the coverage you thought you did. If you don’t, make sure to contact your insurance company to make the necessary adjustments.