What Homeowners Insurance May Not Cover

Your home is your castle. You don't want to risk anything that might diminish its value or comfort. But many people do this by not knowing what their homeowners' insurance policy covers and inadvertently underinsuring their property. Year-end and the start of a new year is a good time to review all your insurance needs with your trusted professional. Here's some information to know beforehand.

For Any Homeowner

Homeowners' policies generally don't cover damage from natural disasters like floods, landslides, sinkholes, and earthquakes. You can secure flood insurance from the National Flood Insurance Program or a private insurer. Additional insurance is also advised if you live in an earthquake-prone area or are at risk for landslides or sinkholes.

For High-Net-Worth Individuals

First, make sure your property is covered for 100% replacement value of your residence and all outbuildings on it, such as a guest house, hobby studio, greenhouse, pool house, stable, and so on. This coverage should automatically increase annually for inflation in your home's value. Also, carry damage and liability insurance for any pool on your property and coverage for any animals stabled.

Expensive jewelry, collections such as art, cars, and antiques, and costly hobby equipment (for cars, woodworking, and other crafts) generally require additional coverage. To insure these items for full value, you should have jewelry and collections professionally appraised and maintain purchase receipts for all items. A personal property endorsement or floater to supplement your homeowners' insurance will be needed for adequate protection. Rates vary between insurers.

Home Offices and Equipment

Standard homeowners' insurance is unlikely to provide adequate coverage for your home office or other business-related activities. According to the Insurance Information Institute, a typical homeowners' policy provides only about $2,500 coverage for business equipment. Further, they often provide no liability coverage for business-related actions, including client meetings.

If you operate a home office or run a small business from home, you'll need insurance that fills business coverage gaps in your standard policy. For professionals who keep a secondary home office—contractors, attorneys, accountants, real estate agents, writers/editors, and bookkeepers—consider adding a permitted incidental occupancies rider to your homeowner's policy. With a primary home office, you'll need to step up to a home business endorsement. This endorsement covers various home-based business activities while falling short of a more costly full business policy.