UPDATED: Mar 13, 2020
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Many first time homeowners make the mistake of believing that their policy, especially a comprehensive one like an HO-3 policy, basically covers every possible bad thing that could damage their property. These unfortunate occurrences are known as “perils” in the insurance industry. Unfortunately, your policy will only cover some perils. Furthermore, not every piece of property in your home or on your land will be covered from peril to peril. If you’re already confused, it’s okay; you certainly aren’t alone. Below, we’ll sort through the confusion so that you can have a better understanding of not just your homeowners insurance policy, but what your premiums are actually paying for.
There are certain coverages on your policy that protect against damages caused by “named” perils. Your insurance agent will provide you with a list of these specific perils, and they will be outlined in your policy paperwork. For the most part, named perils apply to the contents within your home, including personal property such as furniture, electronics, appliances, and more.
If your property is covered by named perils, then your insurance company will only pay out claims if the peril in question which did the damage is on your list of named perils. Any other peril – even if that peril would get a claim payout on, say, your dwelling’s structure – will not be covered by your insurance company. You will have to pay for the damages yourself, 100% out of pocket.
For this reason, it’s very important to know what named perils are included on your policy. Your insurance agent can give you more specific information, but in general, named perils include:
- Fire or lightning
- Windstorm or hail
- Riot or civil commotion
- Vandalism and malicious mischief
- Volcanic eruption
- Falling objects
- Weight of ice, snow, or sleet
- Accidental water discharge from plumbing, heating, A/C, appliances, or sprinklers
- Accidental damage to heating, A/C, sprinkler, or water-heating appliance systems
- Freezing of plumbing, heating, A/C, appliances, or sprinkler systems
- Sudden and accidental damage from artificially generated electricity
If you believe your property is vulnerable to perils which are not listed above, then be sure to talk to your insurance agent about it. In some cases, you may be able to add endorsements (or “riders”) to your policy which can give you added protection. It will likely increase your annual premium, however, so be careful with how many endorsements you choose.
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Open perils works somewhat opposite to named perils. With open perils coverage, you will receive a claim payout for damages caused by any conceivable peril except for those named on your excluded perils list. More often than not, your typical HO-3 policy will exclude the following perils from your open perils coverage:
- Earthquakes and other earth movement
- Ordinance or law
- Power failure
- Nuclear hazard
- Intentional loss
- Government action
- Theft to a dwelling under construction
- Vandalism or malicious mischief after a 60-day vacancy
- Mold, fungus, or wet rot
- Wear, tear, and/or deterioration
- Mechanical breakdown
- Smog, rust, and/or corrosion
- Agricultural and/or industrial operations
- Pollution discharge, dispersal, or seepage
- Settling, shrinking, bulging, or expansion
- Birds, vermin, rodents, or insects
- Pets you own
For some of these perils, you may also be able to get riders that will remove them from your excluded perils list and cover them under your insurance policy. Others, such as flood insurance or earthquake insurance, are almost never covered by private insurance companies. If you live in an area prone to earthquakes, flooding, or any other perils that your insurer refuses to cover, you may have to purchase a completely separate policy. For those extra-risky and/or extra-expensive perils that your insurance company is hesitant to cover, you may have to pay a completely separate (and often more expensive) deductible before your provider will pay out any claims.
For more information on perils that could damage your home, as well as how to get covered, check out the following links: