The purpose of this article is to help you understand how to think about your home insurance policy and give you some principles that will make it easier to understand when you’re more or less likely to have coverage.
Save Me Time!
- Medical and dental insurance pay for prevention. Home and auto insurance don’t.
- Home and auto insurance are not meant to pay for maintenance needs. That’s your job!
- Home insurance is there to protect you financially during a difficult time such as a natural disaster.
- If your insurance company never has to pay you a claim, you should be glad nothing bad happened to your home!
The Rest of the Story
Home and auto insurance are very different from medical and dental insurance. Sure, they both have “insurance” in the name, but they operate under different philosophies which are rarely discussed.
Prevention vs. Unexpected
Health insurance pays for wellness visits. Dental coverage pays for annual cleanings. Why? Because those insurers believe prevention can help avoid larger losses later. For example, detecting high blood pressure early can avoid serious (and expensive) health complications later. Finding a small cavity during a cleaning can avoid more expensive (and painful) procedures later if it were left untreated.
Home and auto insurance do NOT cover prevention. They are for compensating you for unavoidable losses, such as an auto accident.
You are expected to get your oil changed regularly, replace worn brake pads, etc. and pay for these yourself. Most people understand this and don’t ask their auto insurer to pay to replace the alternator when it goes.
Home insurance operates on the same principles as auto insurance. Yet, many people believe it acts more like health insurance. This is the cause of many coverage disputes.
Not For Maintenance
A simple rule of thumb you can use is that home insurance does not cover the “wear and tear” of your home as it ages. It covers things that are “sudden and accidental”, meaning they are unexpected and surprising.
So don’t expect home insurance to replace your furnace when it dies or buy you a new dishwasher. However, if your furnace explodes or your dishwasher floods, the resulting damage will be covered by insurance.
We’ll get into an example in a moment, but many insurance disputes arise because the insurance company views the damage as something that could have been avoided with routine maintenance where the insured believes it was sudden. And often, there are elements of truth to both.
For an auto policy, this dispute is unlikely. It is pretty clear when damage was caused by an accident rather than the battery dying or the engine overheating.
Avoiding the Gray Area
However, for home insurance, it can be difficult to tell if there was pre-existing damage before a sudden event. For example, if the pipe under your sink begins to drip, you don’t ask the insurance company to pay, you call the plumber.
If the pipe instead had burst and flooded the bathroom, you would have an insurance claim…but what if the insurance company finds out the reason for the burst was you knew it was dripping and didn’t call the plumber, but instead ignored it and this led to the damage?
Now, the insurer may say the loss was caused by wear and tear that you should have addressed and now you’re mad at the insurer for contesting your claim.
Thus, the best way to avoid insurance disputes is to keep up with routine maintenance and reduce the risk of large losses that emanate from wear and tear. Not only does this protect you from damage to your home, it will reduce your odds of having a claim and keep your insurance premiums lower.
To help you understand things you can do to help maintain your home, check out our Prevention section.
Protecting You From the Worst
This brings us to when you should expect your home insurance to pay. When you have a loss you couldn’t have avoided like a fire or tornado or theft, that’s when your home insurance will step in and cover your losses.
Ironically, just like you hope you never need to use your auto insurance (because it means you had an accident), you should be happy if you never need to file a home insurance claim.
While some people feel like they’re “wasting money” if they never have a claim, the great news is that means their home was safe for a long time. How much is that worth to you?
And if you do have something terrible happen, insurance means you won’t suffer financially in addition to the physical and emotional trauma.
So why do you have home insurance? Because you win either way! It helps you financially when you need it most after something bad happens and you shouldn’t feel too bad about what you paid if it means you never suffer any damage to your home.