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Common home insurance misconceptions [Survey]

Three in five homeowners mistakenly believe their home insurance policy covers mold damage. But such policies generally offer only limited mold coverage, if any at all.

The misconception about mold damage protection was just one finding revealed in a survey about home insurance policyholders' perceptions and practices commissioned by insuranceQuotes.com.

The survey of homeowners found that in some cases – such as with mold damage – homeowners overestimated their coverage. In another example, 51 percent of policyholders weren’t aware that home insurance does not cover earthquake damage.

In other cases, policyholders underestimated their coverage. For example, 73 percent of Americans don’t know that home insurance covers the theft of personal belongings stolen from a car.

home insurance misconceptionsCarole Walker, executive director of the Rocky Mountain Insurance Information Association, says it is not surprising that homeowners are not aware of exactly what their policy covers.

"It is human nature to not want to think about the unthinkable happening, so most people buy insurance and don't take the time to understand or update it," she says.

The survey found that Americans have a better grasp of other coverage provided by homeowner’s insurance.

For example, 90 percent of Americans understand that homeowner’s insurance provides coverage for fire damage, and 72 percent know that their insurance protects them against lawsuits filed by a visitor injured in the policyholder's home.

How consumers buy home insurance

The survey also revealed interesting tidbits about how Americans choose their insurance company.

Twenty-two percent of homeowner’s insurance policyholders chose their current provider based on a recommendation made by someone they trust. Service received from their agent influenced the choice of 21 percent of respondents.

Another 17 percent of respondents said they simply chose the insurer with the lowest premiums. Such bottom-line thinking is probably a reflection of tough economic times, but it also is short-sighted, says Pete Moraga, spokesman for the Insurance Information Network of California.

"If you're just comparing prices without understanding the coverage, you'll end up with coverage gaps or policies that will not make you whole after a disaster," he says.

And in a bit of bad news for all those insurers who flood the airwaves with ads, just 1 percent said a radio or television commercial was the major factor in their decision to choose a specific insurer.

Does home insurance cover mold?

The survey findings about mold damage underscore how little policyholders understand their home insurance policies.

Loretta Worters, vice president of the nonprofit Insurance Information Institute, says standard homeowner’s policies don’t cover water damage caused by "maintenance" issues, including:

Continuous or repeated water seepage or leakage.

Humidity or condensation problems.

Landscaping or drainage problems.

She says homeowner’s policies also exclude water damage caused by floods.

"If one of these water or moisture problems results in mold, it would probably not be covered by your policy," she says.

Standard homeowner’s policies do cover some types of sudden and accidental water losses, including burst pipes, and sometimes sewer backup or sump pump failure.

"Even if your policy covers these types of water damage, some companies specifically exclude or limit coverage for mold that results," Worters says.

Worters agrees with Walker that policyholder misunderstandings about coverage are the rule rather than the exception.

"Many people fail to read their insurance policies until a disaster has struck,” Worters says. “That's not the time to read your policy."

Tips to prevent mold damage

If you are concerned about future mold damage, some home insurance companies will allow you to buy an endorsement to your policy that provides additional mold coverage, Worters says, adding that the cost of endorsements varies between insurers.

If mold already has appeared in your home, the size of the damage determines how you should respond.

If you spot a moldy area that is less than about 10 square feet (or less than roughly a 3-foot-by-3-foot patch), you can probably clean up the mold yourself, according to the Environmental Protection Agency (EPA). The agency offers tips for doing this on its website.

Larger areas of mold are likely to require the services of a contractor. The EPA suggests finding someone with experience removing mold.

To prevent mold, Worters recommends drying spills immediately, making sure your home is properly ventilated, and using mold-resistant drywall or Sheetrock. It is also wise to use paints with mold inhibitors, she says.

The EPA offers the following 6 mold prevention tips:

1. Dry up water leaks or spills within 24 to 48 hours after the dampness first appears.

2. Clean and repair your gutters on a regular basis.

3. Make sure the ground near your home slopes away from the foundation so water doesn’t collect.

4. Clean air conditioning drip pans and clear drain lines.

5. Reduce indoor humidity to below 60 percent, and preferably between 30 percent and 50 percent.

6. Dry areas of condensation around windows, walls and pipes. Find out where the moisture is coming from and try to fix the problem at the source.

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