How to prevent five common surprises with your home insurance

Linda Melone

Imagine a giant tree root lifting up the floor of your home. You need to not only get rid of the root but replace your ripped-up kitchen floor.

Your homeowner’s policy covers this, right? Surprisingly, it probably doesn’t. “It’s a maintenance issue, so it’s not covered,” says Kevin Foley, owner of PFT&K Insurance Brokers in Milltown, N.J.

Sudden disasters such as a tree falling on your house normally would be covered under a home insurance policy. By contrast, a slow-moving issue such as a dishwasher leak that eventually destroys your kitchen floor could’ve been prevented — and wouldn’t be covered.

Many things you might think are covered under a standard home insurance policy aren’t covered, such as sewage backups.

At least that’s how insurance companies see it.

Here’s how to avoid five other common home insurance surprises.

1. You base your home insurance coverage on the purchase price.

Homeowners often end up with the wrong amount of insurance — either too much or not enough, Foley says.

As a homeowner, if you use the purchase price of your home as a yardstick for your coverage, you may end up buying too much home insurance, Foley Says. The purchase price, or market value, includes land, landscaping and other things that aren’t insured.

In addition, Foley says, people insured for a long time with the same company can be overinsured, because insurance companies attach an inflation factor that can outpace inflation.

Foley gives an example of a home that starts with a $300,000 insurable value, defined as the property’s appraised or market value, but excluding the value of the land. With a 2 percent inflation factor, the insurable value of the home would be more than $330,000 after five years.

If the true inflation factor for rebuilding is 1.5 percent, however, the insurable value should be nearly $324,000. Therefore, the home is overinsured by about $8,000. “It may not seem substantial,” says Foley, “but it adds up quickly over 30 years.”

On the flip side, you could have too little insurance if you put a major addition onto your home or invest heavily in renovations and fail to tell your insurance agent, Foley says. Once you make those improvements, your agent should calculate a new value for replacement cost of your home.

Expert advice: Know the specific inflation factor applied to your policy. Also, reassess the replacement value of your home periodically, at least every five years, and adjust your coverage accordingly.

2. Sewage or drain backup ruined your floors — and it’s not covered.

Unless it’s written into your policy, you’re not automatically covered for damage from a backed-up septic system or backed-up drains, says Michael Davis Sr., president of Michael L. Davis Insurance Agency LLC in Novelty, Ohio. Davis says you’re only covered for such damage if it’s addressed in an endorsement, or add-on, to your policy.

Expert advice: Check your policy and talk to your agent about adding sewage or drain backup coverage to your policy if that’s not already covered. This extra coverage typically costs less than $50 a year, Davis says. “It’s very affordable coverage that, if missed, can cost you thousands,” he says.

3. You file too many claims and your provider cancels your policy.

Homeowners who treat their insurance policy like a piggy bank expect it to pay when anything happens, Foley says. “As a result, they put in small claims they should really pay out of their pocket,” he says.

If you have a $1,000 deductible, filing a claim for $1,500 to $2,000 isn’t a good idea, Foley says. “Filing as few as two claims on a homeowner’s policy in three years puts you at risk for having your policy canceled,” he says.

Expert advice: Foley recommends treating your policy like Aladdin’s Lamp. You get only a couple wishes, so don’t waste them on little claims — save them for disasters.

4. Your vintage movie poster collection was lost in a fire.

Coverage for collectibles and other valuables often is limited and may be beyond the value of your possessions.

For example, standard homeowner’s insurance covers only one piece of jewelry up to $1,500, says Roger Redden, a Farmers Insurance agent in Ladera Ranch, Calif. “So if someone broke into your house and stole your $10,000 wedding ring, you’re covered for only $1,500,” Redden says.

The worst time to find out you’re not covered is when you file a claim, Redden says.

Expert advice: Get a rider added to your policy, which provides extra protection above and beyond standard coverage. The Insurance Information Institute recommends insuring specialty items for their full appraised value, which covers you even if you simply lose Grandma’s antique ring. Other options include stashing valuables in a safe deposit box or buying specialty insurance policy for collectibles.

5. You switch insurance providers to start off with a “clean slate.”

If you’ve filed a claim or two with one insurance provider, you don’t necessarily get a fresh start with a new company, Foley says.

Insurance companies contribute claim information to a database called CLUE (Comprehensive Loss Underwriting Exchange), and other insurance companies search the database before they offer an insurance quote, Foley says. “You can’t make a claim with Company A and think Company B won’t find out,” he says.

The CLUE database includes up to seven years’ worth of property claims history, such as type of loss and amounts paid as well as descriptions of the property covered.

Expert advice: Under the federal Fair Credit Reporting Act, you can request a free copy of your CLUE report by writing to CLUE Inc., Consumer Disclosure Center, P.O. Box 105295, Atlanta, Ga. 30348-5295, or by calling 866-312-8076.