Beware: Your Insurance May Not Cover These 8 Losses

By Dan Rafter on 19 May 2017 0 comments

You might think that you have enough insurance protection. After all, you have car, homeowners, life, health, and disability insurance coverage. What else could you possibly need?

Here's an unsettling truth: Even if you've taken out all the insurance policies necessary to protect yourself and your family, you might still face coverage gaps. Review your policies regularly. And when you do, watch for these potential gaps in your coverage.

1. Life insurance

Many employers offer group life insurance to their workers as an important financial benefit. The American Council of Life Insurers said that at the end of 2015, group life insurance represented 44 percent of all life insurance policies issued in the United States.

Employees like this insurance because it is usually inexpensive. But there are some negatives: Most group life insurance policies end if you leave your employer, and the next company at which you work might not offer this coverage. Secondly, the payouts for group life policies tend to be smaller than for an individual life policy that you'd buy for yourself. Usually, the death benefit with a group life policy is one to two times your annual salary. That's a nice bit of cash, but it's certainly not enough to provide for your family long-term should you unexpectedly pass away.

That's why you should use a group policy as a supplement, not a replacement, for an individual life insurance policy. Yes, an individual policy will cost more, but you'll also receive a far larger death benefit. (See also: Why Your Group Life Insurance Is Not Enough)

2. Dog bites

According to the Insurance Information Institute, dog bites and other dog-related injuries accounted for more than one-third of all homeowners insurance liability funds paid out in 2016. That equaled 18,123 claims, with the average cost for each claim coming out to $33,230.

The challenge with dog bites is that many insurance providers won't insure homeowners who own certain breeds considered "dangerous." Insurance companies vary on this, but many won't insure pit bulls, Rottweilers, German shepherds, or Doberman pinschers. If you have a dog, check with your insurance company to make sure that it is covered. Paying for a dog bite without the help of your insurer can prove costly.

3. Transportation expenses

Your car insurance policy will cover the damages to your vehicle following an accident as part of its collision coverage. But what if you need to rent a car to get around while your vehicle is in the shop? That can be expensive.

Unfortunately, most auto policies don't provide what is known as transportation expenses coverage. And when policies do provide it, the amount they'll give you to rent a car — often as little as $20 a day — might not be enough to cover the whole cost.

Check your policy to determine if it will cover a rental car. If it does, make sure you know exactly how much you'll be getting. If you're not satisfied, it might be time to pay to boost this coverage.

4. Extra liabilities

What if a neighbor drowns while swimming in your pool? Will your homeowners insurance provide enough coverage if your neighbor's family files a costly lawsuit against you?

Probably not — and that's where an umbrella insurance policy comes in. An umbrella policy provides extra liability coverage above the limits of the coverage provided by your auto or homeowners insurance. Maybe your homeowners insurance policy provides liability coverage of up to $500,000. If someone sues you for $1 million, you then might be on the hook for the extra $500,000.

An umbrella policy can protect you from this. It kicks in when a legal action against you supersedes the amount of liability coverage you have. In the example above, your umbrella policy would cover the extra $500,000 that the homeowners policy would not. An umbrella policy can offer you the same kind of extra protection if you cause a serious car accident.

Umbrella insurance isn't overly expensive. The Insurance Information Institute says that consumers typically pay between $150 to $300 a year for $1 million worth of umbrella liability protection. This investment might help you avoid a financial catastrophe.

5. Not enough disability coverage

You might think you've taken the steps to protect yourself and your family by taking out a disability policy. If you are injured or become ill and can't work, this policy will kick in to provide you and your family regular payments.

Here's the challenge, though: Most group disability insurance plans only pay out 60 percent of the insured's base salary. And employees who rely on bonuses and overtime won't receive any pay out for those extras.

Receiving 60 percent of your pay even though you are not working might sound like a good deal. But it can be challenging to live on just a portion of your regular income. Could you afford to cover all your monthly expenses if 40 percent of your income suddenly disappeared, especially if you've got medical deductibles and other costs to cover?

If not, consider investing in supplemental disability insurance. You will have to pay for this, of course, but this extra coverage could protect you in case medical problems keep you out of work.

6. Wind or hurricane damage

A 2016 report from Travelers Insurance identified heavy wind storms as the cause of the greatest number of homeowners insurance claims from 2009 through 2015.

You better make sure, then, that your homeowners insurance policy provides adequate coverage for wind damage.

The Insurance Information Institute says that many insurers, especially those clustered along the Atlantic seaboard and Gulf of Mexico, include deductibles for hurricane and wind damage that are separate from those for incidents such as fire or lightning strikes. These can be expensive. Your standard deductible for most forms of home damage might be as low as $500, meaning that you'll have to cover the first $500 of any repairs before your homeowners insurance kicks in. But an extra deductible for wind or hurricane damage may instead be a percentage of the insured value of your home.

Say your home's insured value is $300,000 and your insurer's wind or hurricane deductible is 5 percent. This means that you'd have to cover $15,000 in damages out of your own pocket before your insurance coverage would kick in.

If you live in a storm-prone area, check your coverage. If the deductible for wind or hurricane damage is too high, it's time to shop for a new policy.

7. Flooding

If a heavy rainstorm causes your basement to flood, a standard homeowners insurance policy won't cover the damages caused by the water.

If you want to protect yourself from floods, you'll need to purchase a separate form of protection known as flood insurance. You can usually purchase one of two policies — one that covers your home for up to $250,000, and a second that covers your personal property for up to $100,000.

Flood insurance will only cover water damage resulting from a flood. It won't provide coverage if your water heater bursts and floods your basement or if water backs up from your toilets.

Flood insurance doesn't do much to protect your personal belongings if they are stored in a basement, either. This insurance only covers damages to mechanical systems, electrical systems, and structural elements. (See also: 9 Surprising Things Your Homeowners Insurance Doesn't Cover)

8. Fire

What if a fire destroys your home? Yes, your homeowners insurance policy will help you rebuild. But don't expect it to pay for the full cost.

Most insurance policies place caps on the amount of coverage they'll pay out. They also factor in depreciation when determining the value of the possessions that were destroyed in the fire. You might receive a much smaller payout than you expect when it's time to rebuild your home.

Call your insurer to make sure that you will receive enough coverage should a fire destroy your home. If that coverage isn't enough, you might have to pay for extra protection.

9. Theft

According to the Insurance Services Office, the average loss in a home burglary is $3,786. Your homeowners policy can help you recover some of the costs from your stolen personal property, but don't assume it'll reimburse you completely. Often, the payout comes up very short.

In order to keep premiums down, homeowners policies put caps on some valuable items, such as jewelry, electronics, or artwork. Even cash often has a measly limit of $200. Let's say your homeowners policy puts a $1,000 threshold on jewelry, and your $3,000 diamond ring is stolen, along with several other expensive necklaces. You'd be out thousands of dollars. The payout wouldn't come close to the value of what was stolen.

If you have valuable items in your home, you may want to consider purchasing an additional rider (or "floater") policy that will cover items beyond what homeowners will offer. Some providers offer special riders for unique items, such as jewelry or camera equipment.

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