Standard Homeowners Policy Exclusions

Standard homeowners policies exclude coverage for flood, earthquake, war, nuclear accident, landslide, mudslide, sinkhole. Some of these exclusions are discussed below. 

1. Floods 

Flood damage is excluded under standard homeowners and renters insurance policies. Flood coverage, however, is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers. Additional information on flood insurance can be found on the FloodSmart.gov Web site or by calling 888-379-9531. For coverage over and above the $250,000 limit for property and $100,000 for contents provided by the NFIP, excess flood insurance is available from private insurance companies. (See Topic on Flood Insurance on page 47 for further information.) 

Tsunamis cause flood damage and are therefore only covered by a flood policy. 

2. Earthquakes 

Earthquake coverage can be a separate policy or an endorsement to a homeowners or renters policy. It is available from most insurance companies. In California, it is also available from the California Earthquake Authority, a privately funded, publically managed organization. In earthquake prone states like California, the policy comes with a high deductible. 

3. Damage Resulting from “Faulty, Defective or Inadequate” Maintenance, Workmanship, Construction or Materials 

Defective products can include construction materials. An insurance policy will not cover damage due to lack of maintenance, mold, termite infestation and infestation from other pests. It is the policyholder’s responsibility to take reasonable precautions to protect the home from damage. 

Levels of Coverage 

There are three coverage options. 

1. Actual Cash Value 

This type of coverage pays to replace the home or possessions minus a deduction for depreciation. 

2. Replacement Cost This type of coverage pays the cost of rebuilding or repairing the home or replacing possessions without a deduction for depreciation. 

3. Guaranteed/Extended Replacement Cost An extended replacement cost policy pays a certain percentage, generally 20-25 percent, over the coverage limit to rebuild the home in the event that materials and labor costs are pushed up by a widespread disaster, for example. For example, if homeowners take out a policy for $100,000, they can get up to an extra $20,000 or $25,000 of coverage. 

Some companies offer a guaranteed replacement cost policy, which pays whatever it costs to rebuild the home as it was before the fire or other disaster, even if it exceeds the policy limit. This gives protection against sudden increases in construction costs due to a shortage of building materials after a widespread disaster or other unexpected situations. It generally does not cover the cost of upgrading the house to comply with current building codes. However, an endorsement (or an addition to) the policy called Ordinance or Law can help pay for these additional costs. 

Guaranteed and extended replacement cost policies are more expensive; but can offer excellent financial protection against disasters. This type of coverage, however, may not be available in all states or from all companies.