Most articles on homeowners insurance focus on what's covered. It's important to understand what your policy covers if you have a home emergency. What's even more important is understanding what your homeowners insurance does not cover.
Unfortunately most homeowners never read their insurance policy. You're busy juggling all the things needed when buying a house … and surprisingly, the insurance company often neglects to give you a copy (Hint: make sure to ask for a copy of your policy right away to insure you have time to review before closing on a new house).
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Inspiration for this article began with helping a young couple who recently purchased a new townhouse. There was a roof leak that caused water to drip down into a wall cavity, soaking the drywall so the paint started flaking off the wall. They needed help because the builder's warranty program, their homeowners association (Read HOA Documents Before You Buy a Condo) and homeowner insurance company all denied responsibility for the roof repairs!
Who's Responsible for Home Repairs?
Cars need periodic maintenance and dealers give us a schedule. Doctors tell us when to schedule our next checkup. Unfortunately, there's no trusted resource that tells us when or how to maintain our homes. Some homeowners are proactive and find help with articles like Seasonal Home Maintenance Checklists for Homeowners.
Responsibility for home repairs depends on where you are in the life cycle of a house plus the type of homeowner insurance or home warranty you've purchased. Following the timeline above, we review who's responsible for repairs to your home.
New Construction Houses
New construction houses are growing in popularity. And too often home buyers assume that a newly built home is perfect. That simply isn't true as production builders use 20 plus sub-contractors and prioritize their schedule over quality control, allowing installation problems to be ignored.
Buyers should get a thorough home inspection before closing on a new house, ideally several weeks before closing so you can get repairs made before the closing. Understand though, that many common building mistakes aren't visible so the inspector might not find them. That's why I started exploring this topic, because of the roof leak my friends are struggling to determine who pays for repairs.
Where do you turn for help with repairs to your new home?
- Most builders handle repairs for the first year but you've got to micro-manage them or things won't get done (here's my new home punchlist). This is one of those situations where the squeaky wheel approach works, like sending a weekly email with all outstanding problems.
- Builders typically turn repairs over to a home warranty company after the first year. But watch out as this is a “limited warranty” that limits coverage (using RWC Home Warranty as an example) to the following:
- For two years, coverage for heating, cooling ventilating, electrical and plumbing systems that should function and operate correctly. Of course there are more limitations so they'll correct pipe leaks but “faulty faucets, valves, joints and fittings are applicable to year one coverage only”. That means they wouldn't replace the faulty exterior hot water pressure relief valve (shown above) that I and all my neighbors needed in less than two years … really!
- Ten year warranty coverage is given for “major structural defects (MSD)” necessary to restore the load bearing capability of the affected components.
- Builders limit their liability by passing warranty coverage to others like appliance manufacturers. It would be nice if they gave you copies of the manufacturer paperwork … but they don't as that's too much work for them.
- State laws often require builders to provide more extensive coverage and they'd try to hide facts from home buyers. In Florida for example, there are statutes like 718/203, that address condominium warranties and timing limitations … like three years versus builders stating less time for roof defects. Sadly construction defects often require hiring a lawyer and based on my personal experience, it's not worth going this route unless your claim exceeds $50,000.
Young Houses (< 10 Yrs Old)
New homeowners don't always realize how much work is involved in maintaining a house, especially if you're a new homeowner used to calling the landlord. Houses are complicated and little things need work every few months, whether a house is new or older. At a minimum you need to address problems where water (learn where to find leaks) or electricity (get electrical safety tips) are involved to protect your home and your family's health.
Proactive maintenance is also important. Many tasks are simple like changing out your HVAC filter and cleaning the dryer vent. Other maintenance requires more knowledge like tuning your HVAC system and cleaning/staining your deck.
Older Houses (> 10 Years Old)
Home repairs and replacement are more costly … and confusing. As your house ages, components reach what's called “end of life” and need to be replaced. The most expensive components are your roof, HVAC system and refrigerator. You'll want to start saving for these expenses so here are the projected life span for most home components.
- Home Components: Plan & Budget for Exterior Home Updates because your house is a living, breathing object that reacts to its' environment. The materials that make up your home's envelope are worn down by nature, from the sun beating down, to wind and water.
- Budgeting to Replace/Upgrade Interior Home Components age due to use, along with changes in temperature and humidity that affect building materials inside your home.
In Florida some homeowners wait for a hurricane to damage their roof, hoping their home insurance company will replace the roof. You might be lucky but state laws are changing to stop this abuse.
Learning What Homeowners Insurance Does NOT Cover
Why did I spent so much time reviewing who's responsible for the myriad of problems we face as homeowners. To impress on you the repairs you need to save for. That's why it's important that you have an emergency fund and save for larger home replacement projects like a new roof. You should also understand where you may be able to get financial help for problems not covered by your homeowner insurance.
Sudden or Accidental Damage Covered
The hot water heater exploded after a new tenant moved into our condex in New Hampshire. The insurance company covered repairs due to water damage – clean up, insulation, drywall, painting and a new tile floor.
Normal Home Maintenance Not Covered
The insurance company did not cover the cost of a new hot water heater. They said the heater was part of normal home maintenance. It was ten years old, so in fact we were approaching end of life.
Long Term Damage Isn't Covered by Homeowners Insurance
We found the wood rot while drying out the basement. The insurance company did not cover replacing exterior stone veneer siding down to the plywood sheathing. The damage had begun with construction ten years earlier. The veneer wasn't installed properly so there were no weep holes for water to drain behind the veneer and thus, wood rot occurred.
What Homeowner Insurance Does NOT Cover
Insurance companies are in business to make a profit. They will take advantage of any reason available to deny your claim, which is why you have to actively manage things.
Running a handyman business, I dealt with many homeowner insurance claims and learned how to write up successful estimates as too often, they try to deny claims as deferred maintenance. It was hear to see homeowners struggle with repairs they could not afford. For example, one family finished a bedroom in the basement for their daughter and discovered a gaping hole in an exterior wall. The claim was denied because the wood rot had occurred over ten years and should have been found during routine home maintenance. Sadly, they had just spent all of their money on the bedroom …
Here are most of the non-technical reasons why homeowner insurance companies will deny your claim. Please understand it's part of their process. Insurance companies know more than fifty percent of these denials will never be disputed – it's a game. You've got to learn how to play their game to win!
Recognize Repairs Homeowners Insurance Does Not Cover
- Learn your builder's warranty timeline and follow it. If you find lots of little problems at the beginning, a second home inspection before your first year warranty period expires might make sense.
- Implement a proactive home maintenance schedule to find and avoid problems that might give your insurance company a reason to deny a valid claim. A friend's claim for flooding did not cover new cabinets because they found evidence of prior damage.
- Monitor the useful life of costly home features like your hot water heater, HVAC system and roof. You're going to pay replacement costs regardless, so isn't it better to avoid the stress of repairing water damage too … like my hot water heater above.
- Damage from external sources are not covered. This includes termites, insects, birds and rodents plus smog and/or smoke from industrial or agricultural operations.
Excuses Used by Insurance Companies to Not Cover Claims
- When the cost of repairs is less than your deductible, you're better off not reporting the damage. You won't get any money from the insurance company and you have to make the repairs or it could cause your next claim to be denied.
- Don't take too long to file a claim. Each company/policy has different requirements of timeliness. Fill out and submit the correct forms and if you don't have everything requested, you can add more supporting documentation later.
- Take preventive measures to stop further damage. For example, if a tree goes through your roof, put a tarp over the roof to minimize additional damage from wind, water, etc. Make sure you leave evidence of the original damage so the insurance company can see it when they arrive.
- Document everything starting with twice as many photos as you think you need to document the damage. Even better if you have documented your home and belongs before the damage occurred. Be prepared to provide repair estimates, receipts and other proof of value. Due diligence is fair but unreasonable demands like coming into my house during the Covid-19 lockdown are not.
Policy Limitations that Reduce Insurers Risk
- Certain natural elements require a separate insurance policy, generally provided by a government agency. These include:
- Flood insurance is required if your home is located in a flood zone as indicated in FEMA's flood zone maps. Beware that some mortgage service companies like Mr Cooper are trying to sell flood insurance when it's not required (read: My Flood Insurance Nightmare, which is helping other homeowners fight back).
- Earthquake insurance can be added to your policy with another endorsement or in California, the state offers earthquake insurance. According to California's Department of Insurance, it “covers some of the losses and damage that earthquakes can cause to your home, belongings, and other buildings on your property”.
- When buying homeowner insurance, focus on exclusions in your policy that document what's not covered. These limitations often require another insurance policy for things like flooding. Many items require endorsements which cost more … and beware, insurance agents often don't review these with you. Here are common endorsements:
- Sinkhole loss coverage helps when your home is damaged by a sinkhold. They don't happen often but when they do, they can swallow entire houses with little warning.
- Water backup coverage resulting from backed-up sewer lines, drains or sump pumps.
- Equipment breakdown coverage, similar to a home warranty, can cover HVAC systems and large appliances that stop working for reasons other than normal wear and tear.
- Service line endorsements provide coverage for the service lines that connect your property from the public utility lines to your property. These include fresh water, sewage, electricity, etc.
- Ordinance or law coverage is complicated. It covers demolition and repairs required to bring your home up to current building codes. There are three different types of coverage that cover repairs to damaged and undamaged portions of your home.
- Scheduled personal property covers high value items like jewelry, computer and camera equipment, artwork and antiques. You have to list the items and in some cases, an appraisal may be required.
- Identity theft coverage and cover expenses to resolve issues resulting from identity theft such as legal fees and lost wages.
- Homeowner insurance also includes caps that limit coverage to a fixed dollar amount. They often aren't visible on the declaration page, buried in the policy where you likely won't see it until it's too late. Typical caps include:
- Mold is either omitted from a policy or included with a $10,000 cap. That probably works for smaller claims like a kitchen or basement. This cap was totally inadequate when my 2,200 square foot house flooded.
- Your homeowners insurance won't cover intentional damage.
- An insurance company may not cover your claim if information you provided was incomplete, false or out of date. Examples of this include:
- Failure to disclose risks like outdated electrical wiring, that would flag your home as a higher fire risk.
- Changes to property use, if not communicated may lead to your insurance company denying your claim. Examples include remodeling that adds more living space to your home, installing a pool or renting your home.
- Making false statements about your claim may be identified by an insurance company's fraud prevention system. Even if your claim is valid, false statement may cause the claim to be denied.
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