Insurance Relations: Common Coverage Pitfalls to Avoid

When disaster strikes—whether it’s a burst pipe, a storm, or a fire—your property insurance is supposed to be your safety net. You’ve faithfully paid your premiums, so you expect the claims process to go smoothly, right? Unfortunately, that’s not always the case. Many homeowners encounter frustrating coverage pitfalls that can lead to unexpected denials, delays, or reduced payouts.

In this post, we’ll explore some of the most common coverage pitfalls in property insurance claims and offer practical tips to avoid them. By the end, you’ll be better prepared to handle your claim and, hopefully, dodge the most frequent pitfalls.

1. Misunderstanding Your Policy’s Coverage Limits

One of the biggest mistakes homeowners make is assuming that their policy covers every type of damage at full cost. In reality, most policies have coverage limits that cap the amount your insurer will pay for certain types of damage. These limits vary by policy and can be significantly lower than the total cost to repair or replace damaged property.

For example:

• Water damage may have a separate limit, especially if it’s caused by flooding (which is typically not covered under standard homeowners insurance).

• Personal property, like electronics or furniture, may only be covered up to a certain percentage of the overall policy, leaving you with out-of-pocket expenses if high-value items are damaged.

Tip: Before disaster strikes, review your policy’s coverage limits for major categories like water damage, personal property, and structure damage. If necessary, increase your coverage or add riders for high-value items.

2. Exclusions You Didn’t Know About

Insurance policies are packed with exclusions, which are specific situations or types of damage that aren’t covered. These exclusions can often surprise homeowners when they attempt to file a claim.

Common exclusions include:

• Flood damage: As mentioned earlier, standard policies typically exclude flood damage, which requires a separate flood insurance policy.

• Earthquake damage: Similar to floods, earthquakes require a special policy or endorsement.

• Wear and tear: Your insurance policy is designed to cover sudden, unexpected events—not gradual damage like old pipes corroding or a roof that deteriorates over time.

• Mold damage: Some policies have strict exclusions or very low limits for mold-related claims, especially if the mold buildup was due to negligence or ongoing issues like a small, unresolved leak.

Tip: Take the time to read your policy’s exclusions carefully. If you live in an area prone to natural disasters like floods or earthquakes, make sure you have the right coverage. It’s also a good idea to stay on top of routine home maintenance to prevent damage from being classified as wear and tear.

3. The Deductible Trap

Your deductible is the amount you agree to pay out of pocket before your insurance coverage kicks in. While higher deductibles lower your monthly premium, they can also become a financial hurdle when it’s time to file a claim. Many homeowners are caught off guard by how much they need to pay before their insurance company contributes to the repair costs.

There are also different kinds of deductibles to watch out for:

• Percentage-based deductibles: These are often used for natural disasters like hurricanes and earthquakes. Instead of a fixed dollar amount, you’ll be responsible for a percentage of your home’s insured value, which can add up quickly.

• Split deductibles: Some policies have different deductibles for different types of damage (e.g., a higher deductible for windstorm damage), making the claims process even more complicated.

Tip: Choose a deductible that balances affordability with protection. Don’t just select a high deductible to lower your premium if it’s going to leave you in a tough spot when you need to make a claim. Also, know the different deductibles for specific risks so you're prepared.

4. Not Reporting Damage Promptly

In the chaos following property damage, it’s easy to put off reporting the incident to your insurance company. However, delaying this step can lead to your claim being denied altogether. Most policies have a time limit for reporting damage, known as the “prompt notice” clause. Failing to meet this deadline could mean forfeiting your right to coverage.

The longer you wait, the harder it becomes to prove the extent of the damage and its cause. Insurers may argue that delays made the damage worse or that they can’t verify the event occurred as reported.

Tip: As soon as you notice any significant damage, call your insurer. Even if you’re unsure whether it’s worth filing a claim, it’s better to report it and let them make that determination. Keep thorough records, including photographs and receipts, to document the damage and any repairs made while waiting for an adjuster.

5. Inadequate Documentation of the Damage

Insurance companies require detailed documentation to process your claim. If you don’t have adequate evidence of the damage, your insurer may reduce your payout or deny the claim. Homeowners often make the mistake of rushing to clean up the damage without first documenting it, which can weaken their case.

Photos, videos, and receipts can make a world of difference in supporting your claim, especially if there’s a dispute about the extent of the damage or what caused it.

Tip: Take clear, detailed photos and videos of the damage as soon as it happens. Include close-ups and wide shots to show the full extent. If possible, document the condition of your home before the event by keeping an inventory of your possessions and their value. This can be as simple as a folder with receipts or a home inventory app on your phone.

6. Failure to Mitigate Further Damage

Once your home is damaged, your insurance company expects you to take reasonable steps to prevent further damage. For example, if a tree has fallen through your roof, you’ll need to cover the opening with a tarp to prevent rain from entering. Failing to do this is known as not mitigating damage, and it can result in your claim being reduced or denied.

Insurance companies may argue that additional damage caused by neglect isn’t their responsibility.

Tip: After any damage occurs, take temporary steps to mitigate further harm. This might involve boarding up broken windows, shutting off the water to prevent further flooding, or hiring a professional to assess the situation. Just make sure to document everything you do and keep receipts for any supplies or emergency services—your insurer may reimburse you.

7. Underinsured or Outdated Policies

Over time, the value of your home can increase due to improvements, rising market values, or inflation. If you haven’t updated your insurance policy in years, you could find yourself underinsured. This means the coverage you have may not be enough to fully rebuild or repair your home in the event of a disaster.

A common pitfall is actual cash value (ACV) vs. replacement cost value (RCV). ACV takes depreciation into account, meaning you’ll only get the current market value of damaged items (which could be significantly less than what you paid). On the other hand, RCV covers the full cost to replace damaged items with new ones of similar quality.

Tip: Review your policy regularly to ensure your coverage keeps up with your home’s current value. Consider opting for replacement cost coverage over actual cash value, as it provides a higher payout in the event of damage.

8. Pre-Existing Damage or Poor Maintenance

Insurance is meant to cover sudden, accidental events—not damage that results from long-term issues or neglect. If your claim involves damage caused by pre-existing conditions or poor maintenance, your insurer is likely to deny it. This includes things like a leaky roof you’ve ignored for years or an old appliance that finally breaks down due to wear and tear.

Tip: Stay proactive with your home’s maintenance. Regularly inspect your roof, plumbing, and electrical systems for signs of wear, and address any issues before they become larger problems. Keep records of any repairs or maintenance work, which can help prove that the damage was not due to neglect.

Final Thoughts: How to Avoid Common Coverage Pitfalls

Navigating the property insurance claims process is tricky, but being aware of the common pitfalls can help you avoid costly mistakes. The key is to know your policy inside and out—understand what’s covered, what’s excluded, and how much your deductible will cost you. Don’t wait until disaster strikes to check your coverage; regularly review and update your policy to ensure it matches your needs.

And remember, if you find yourself struggling with a complicated claim or denial, you don’t have to go it alone. Tugboat is here to help you navigate the process and get the compensation you deserve.

Disclaimer:

This blog is intended for informational purposes only and does not constitute legal or financial advice. Tugboat provides guidance and support, but we are not licensed public adjusters or attorneys. We do not negotiate or adjust claims on your behalf. All advice given is intended to empower you in managing your own claim, but it is ultimately your responsibility to pursue and handle the claim. Tugboat is not responsible for claim outcomes. Additionally, our tools are provided based on the information you provide, which may be incorrect or incomplete. Always consult a licensed professional for case-specific guidance.

Need expert guidance on a homeowner’s insurance claim? Tugboat Claims is here to help!