Are You Covered?

By Richard A. McGrath, CIC, LIA

One benefit of insurance is the peace of mind that comes from knowing that you’re covered if something happens.

But inadequate insurance provides a false sense of security.  Not all policies are alike and not all insurance carriers provide the same coverage; in fact, some policies may exclude common occurrences, because of the cost of covering such claims.

One of the most important roles of your insurance agent should be to identify any important gaps in your coverage.  You may elect not to cover every gap, but at least if you know what’s covered and what’s not covered, you can make rational decisions about the insurance you purchase.

Keep in mind that skimping on coverage will only save you money until you want to file a claim – and find out that you lack the coverage you need.

Common Gaps in Coverage

When considering potential gaps, your homeowner’s policy is the place to begin.  Your home is your most valuable asset; what do you need to do to protect it?  What protection do you need beyond insuring your home?

Water damage.  One common shortfall for homeowners is in the area of water damage.  Damage caused when water leaks from plumbing, heating, air conditioning, sprinkler systems or household appliances is typically covered by homeowner’s insurance, although damage to the appliance or system typically is not covered.

However, many policies say they cover only damage caused by “sudden and accidental” leaking.  Some may even specify that damage is excluded if it is caused over a period of “weeks, months or years.”

Damage caused by the backup or overflow of sewers, drains and sumps may also be excluded.  Additional coverage for water damage caused by sewers, drains and sumps can usually be added for a minimal cost.  It typically includes a $250 deductible and provides up to $5,000 for damages.

Homeowners should be certain they fully understand what their policy covers when they are purchasing homeowner’s insurance.  When comparing policies, don’t just look at the price; be sure to also compare what is covered.

Mold and wet rot.  With a significant increase in the number of lawsuits filed alleging bodily injury or property damage resulting from mold, some insurers have completely eliminated coverage for mold damage.

Most policies, though, still cover mold and wet rot that results from covered causes, but not when it results from ongoing conditions.  For example, if a tornado rips off the roof of your home, and, as a result, water gets into your home and mold develops, the damage would typically be covered.  If mold results from an ongoing leak in your washing machine that you failed to repair, damage typically would not be covered.

To avoid having to pay out of pocket for mold damage, be certain to read your policy carefully and talk to your agent about closing any gaps.  Also, try to prevent mold damage by addressing water damage quickly.  To prevent mold damage, experts believe that water issues must be addressed within 48 hours of when they take place.

Liability.  Personal liability coverage through a person’s homeowner’s policy and auto insurance policy insures many, but not all, causes of liability to which a homeowner may be exposed.

Coverage for bodily injury to an insured person, for example, is not covered by homeowner’s insurance.  Health insurance will, of course, cover medical costs, but a suit seeking damages would not be covered.

If, for example, a homeowner is a foster parent and a foster child is injured, resulting in a lawsuit by the child’s natural parent, it would not be covered.  Anyone who is or plans to become a foster parent should check with the foster care agency to determine what coverage, if any, is provided.

Homeowner’s liability coverage also excludes business-related activities.  If you have a home office or even occasionally work from home, be aware that an injury or property damage resulting from your business work will not be covered by your homeowner’s policy.

If you volunteer for a non-profit organization, your homeowner’s policy would cover potential liability in most cases, but not if you have fiduciary responsibility and a loss takes place.  If you are a director of the agency, you will likely be covered by the organization’s directors and officers liability policy.  The purchase of an umbrella liability would provide coverage for directors/officers of a 501-C.3 Non –Profit.

Auto Rental.  It’s important to know what your existing auto insurance covers, otherwise you may not have the coverage you need or you may end up buying coverage you don’t need.  Whatever coverage and deductibles you have on the car you own will typically apply when you rent a car, as long as you are not using the car for business.

Insurance offered through credit cards also typically covers damage to or loss of the rented vehicle.  It usually does not cover loss of personal belongings, damage to other cars or property, or personal liability for bodily injury or death claims.

Umbrella liability insurance is a good way to close many gaps.  It provides protection beyond your auto and homeowner’s policies, and includes coverage for accidents while driving a rental car.  Umbrella coverage typically costs a few hundred dollars for a million dollars of coverage and a small amount more for each additional million in coverage.

Other.  As we’ve previously written, no area is immune from earthquakes.  Because they are rare in Massachusetts, the cost of adding coverage for earthquakes is low.

Many homeowners hold property in trust, so they can pass it along to heirs without it being included in their taxable estate.  However, a trust is not a person and cannot have a spouse or other relatives as residents.  If a trust is named as the insured, those who reside in the home will have no coverage for their personal property or for personal liability.

A special endorsement can be added to the policy to provide coverage for residents and beneficiaries.

In today’s online world, identity theft has been used not only to steal from victims’ bank accounts and to make expensive purchases, but to obtain home equity loans.  There have even been cases where an identity thief has fraudulently sold a family’s home.

Homeowners’ insurance sometimes includes coverage against identity theft.  An endorsement can be added that provides coverage ranging from $5,000 to $15,000, but it only covers expenses related to the identity theft, such as attorney’s fees.

There are plenty of other areas where you may have gaps in your coverage.  Your insurance representative should be willing to review your policies with you, identify any gaps in your coverage, and recommend the most cost-effective way to fill any gaps that need to be filled.

Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass.  He can be reached at

This article is written for informational purposes only and should not be construed as providing legal advice.