What's Not Covered - homeowners' insurance exclusions and casualty coverage

Kiplinger's Personal Finance Magazine, August, 2001 by Kimberly Lankford

"If it wasn't stolen and you don't have a police report, it may not be covered," warns Lynn Knauf, a policy manager with the Alliance of American Insurers, who had plenty of experience denying claims in her previous job as an insurance adjuster. You can buy a rider to cover such losses and tie the coverage level to your jewelry's appraised value. The cost: about $15 per $1,000 of the jewelry's value.

Coverage for everything

SOME POLICIES are called "all risk," which means they cover damages caused by almost any situation, except those specifically excluded in the policy. But others are "named perils" policies, which cover only damages caused by particular situations--such as fire, theft, vandalism, a plane crashing into your house and more than a dozen other circumstances. The laundry list seems to include everything, but inevitably leaves out some scenarios.

When a truck hit a power pole in Renae Cannon's Antioch, Cal., neighborhood, a power surge destroyed her home alarm system and two TVs. The damages wouldn't have been covered under a standard policy--as many of her neighbors discovered--but she had a rider that transformed her named-perils policy into an all-risk one. The insurance company paid Cannon about $3,000 to replace the TVs and alarm system. Getting an all-perils rider typically adds about 20% to your annual premium.

If you own a one-of-a-kind house, it's easy to underestimate the amount of insurance you need. People typically calculate their coverage amount by multiplying the square footage by local building costs. But if you have marble mantels, mahogany trim, odd-size 19th-century windowpanes and chandeliers in every room, the generic calculation will leave you far short of the cost to rebuild your home.

Kevin Daly, an account executive with PLI Brokerage, in Boston, recently upped the coverage on a historic townhouse with many of these special features. The owner had originally insured the home for about $400,000, based on its square footage. When Daly and an appraiser visited and added up the specifics, they found that it would cost more than $950,000 to rebuild. Some companies, such as Chubb, will pay the entire cost to rebuild, regardless of the amount of insurance you've bought (although they appraise it themselves to make sure the value is close). Others cap the payment at 125% of the insured amount, or 100% for homes built before 1925. Yes, buying the right amount of insurance costs more--doubling coverage could raise premiums by 75% to 100%--but too little insurance is a fool's bargain.

You may also fall short if you have valuable antiques or artwork. Homeowners policies typically cover furniture and most possessions at 50% of your dwelling limit--a $200,000 cap on the dwelling would mean a $100,000 cap on property. If that isn't enough, consider covering some valuable items separately, at a rate of about $2.40 per $1,000 of value.

Catches in car insurance

WHEN SOMEBODY drives your car with your permission, he or she is typically covered by your insurance. But if the extra driver lives in your house and isn't listed on the policy, that general rule may not apply. If, say, your son is home for the summer from college and drives a family car to work every day, check with your insurer to make sure he is covered. Chances are the answer is yes, even if you took his name off the policy. But some companies require that a child be named on the policy for the summer months, and they boost your premiums. This is most likely if you are with a high-risk insurer, or your child has a lousy driving record. The key is to ask.