It's a real horror story, one scary enough to keep you up at night. You pay your insurance premiums religiously for years and then your house floods, your car is wrecked, or you suffer a serious injury. You file an insurance claim and wait for your losses to be taken care of. And then comes the terrible news: the loss was excluded from your policy and your claim was denied (improve your odds by learning How to File a Claim that Gets Paid Sooner).
No one wants to pay for massive expenses like these out of pocket. And while most of us know that there are exclusions in our insurance coverage, we tend to assume we'll be protected if we get hit with a devastating event. Unfortunately, that's a recipe for being caught off guard.
In this article, we'll help you understand your policy by going over some of the unexpected exclusions that might be on them.
Why Do Insurers Exclude Certain Risks?
Insurers generally start with a broad insuring agreement, and then use exclusions to eliminate the risks they’re unwilling or unable to insure and sometimes because they’ve addressed the risk in another way (see A Look at Uninsurable Risk to learn more).
Common exclusions include catastrophic events such as war, which an insurer couldn’t possible protect against. A claim for a car accident isn’t covered under a home insurance policy's liability protection because that falls under your auto insurance. Insurance companies also understandably exclude fraudulent claims, intentional damage, and losses resulting from illegal activities.
But here are some lesser known exclusions that you might not know are on your policies.
You left the sunroof open in your car before a storm passes through your area. The next morning there are pools of water on the floor and your electrical components start acting up. You've got comprehensive coverage so you file a claim, only to have it denied.
Why? Not because it was water damage (that would be covered), but because the damage happened due to your negligence. Unless you take reasonable and ordinary care of your vehicle (yep, that means making sure the sunroof is closed before leaving it in the driveway), you won't be covered.
Leaving a Property Vacant
You bought a new house and moved into it, but you haven’t sold your old one yet. You can afford to wait for the right buyer, so instead of renting it out, you just leave it vacant. Unfortunately, a fire breaks out and causes thousands of dollars in damages. You kept the property insured even after moving out of it, but your insurance company denies your claim.
Most people don't realize that their homeowner's insurance won't cover them if the building isn't regularly occupied. If they deem your home vacant, they can void your policy after 30 days, leaving you without protection.
This doesn't mean, however, that you are always taking a serious risk when leaving your house empty. If you apply for a vacancy permit, you can still have basic protection.
Driving to Earn Money
Instead of letting your car sit parked in the driveway all day, you decide to use it to earn a little extra cash. After signing up for a ridesharing service and transporting passengers for a few weeks, you get into an accident. But your insurance company won't page for the damages.
You see, you've been using your car for what the insurance company calls "livery conveyance" (transporting people for money). Basically, you've got personal auto insurance, which has exclusions for business uses. To use your car for business purposes, you need commercial general insurance (to learn more, check out Making Money Through a Ridesharing Service? Here's What You Need to Know About Your Insurance).
You need shingles replaced on your roof, you so you go online and find a contractor. Two months later, the roof starts leaking and causes water damage to your home. You discover that the roofer who did the work doesn't have have contractor's liability insurance, so you file a claim through your homeowner’s policy for reimbursement. It gets denied.
This one could catch you off-guard because you're not the one who caused the damage. But homeowners policies have exclusions for faulty or inadequate workmanship, even if the work was contracted out. On top of that, most water damage coverage only applies for damage caused by sudden and unexpected events (for related reading, see Home Renovations: When Do They Make a Difference for Your Insurance?).
Ignoring Wear and Tear
You’re driving to work one day and someone cuts you off. You slam on the brakes and… nothing. With the brakes out of commission, you plow into the car and cause damage to both your vehicle and the other driver’s. You file an insurance claim for damages, and you’re denied.
As it turns out, the brakes stopped working properly due to wear and tear. And that unfortunately means that it's excluded from your policy and you're the poor soul who'll have to pay the bill (learn The First Steps You Need to Take After Wrecking Your Car).
You come home to discover your basement flooded with six inches of effluent. The city sewers backed up after heavy rain and ruined your basement development. Your homeowners insurance covers water damage, so you assume you're fine. But then the insurer denies your claim.
A standard homeowners insurance coverage will provide you basic coverage but not for sewer back-up, floods, and weather-related events. It only protects you from water damage from events like burst pipes (find out more in Water and Flood Insurance: 6 Things That Aren't Covered).
Mold Remediation and Repairs
You discover mold growing on a wall in your kitchen, so you call in the professionals. They tear off the sheetrock and discover a leaky pipe leading to the dishwasher. With the source of the problem located, the contractor gives you an estimate: $6,000 for mold remediation and reconstruction.
You've got insurance, so that's no problem, right?
Wrong. Your insurer excludes coverage for issues caused by poor maintenance. And they'll only pay for water-related damage (including mold issues) caused by a "specified peril." So, that $6,000 bill will be landing right on your doorstep.
You discover insects scurrying around your house, so you call the exterminator. As it turns out, they've chewed through walls and some of the electrical wiring. The exterminator tells you dealing with the problem will cost $500 for the extermination plus repair costs. You file a claim, but the insurance company tells you they'll only pay for the repairs, not the extermination.
Pest removal is normally considered a maintenance issue. And maintenance issues are – you guessed it – not covered by your home insurance.
Meeting the Code
You survived a major fire, but your home experienced substantial damage. The building inspector tells you that your home will need an upgrade during the repairs if it's going to meet the latest building codes. You're covered for the fire, but the insurance company won't pay for the upgrade costs.
Unless you have a "law and ordinance" rider on your home insurance policy, you can't recoup the expense of meeting building codes. If you've just got standard homeowner's coverage, you're not going to see a refund for the upgrades.
Know Your Coverage
Most people have a vague idea of what their insurance policies cover, but they're a lot fuzzier when it comes to what they don't.
The exclusions listed here are just some of the typical exclusions that you might not realize are leaving gaps in your insurance protection. Review your policies regularly and make sure you understand the extent of your coverage. If you can't tell from your policy documents whether something is covered, call up your agent. They should be able to help you figure things out and even help you buy extra coverage if you need it (if you don't have an agent yet, check out 5 Questions to Ask Before Choosing an Insurance Agent).