Homeowners Insurance Coverage Gaps

When we buy a homeowners insurance policy, we expect that our coverage will make us whole if something terrible happens. When our house burns to the ground, is flooded with water or is part of a crime spree, we’re safe. 

Unfortunately, that’s not always true. 

Most homeowners insurance plans come with coverage gaps. These limitations can lower your premiums and make your policy affordable. But they could cause intense distress if you’re unaware of them until it’s too late. 

For example, 97.7% of homeowners claims in 2021 involved property damage, including theft.[1] Some policies contain caps, so you’re without coverage if the thief takes too much. And your policy could only cover the actual cost of the item, not what it will cost to replace it. 

Here’s what you need to know about common gaps and how you can prepare for them. 

Key Facts on Homeowners Insurance Coverage Gaps

10 Common Homeowners Insurance Coverage Gaps 

Every plan is different with policies that could impact your coverage. These are common homeowners insurance coverage gaps you should be aware of:

1. Personal Valuables 

Most homeowners insurance policies include coverage for your possessions. But gaps could leave you on the hook if something goes wrong.

Your home may contain these types of valuable items:

• Jewelry 
• Furs 
• Collectibles (like vinyl records or rare coins) 
• Firearms 
• Computers 
• Vintage furniture

In a typical homeowners policy, coverage for your possessions is capped at a percentage of your home’s value. But if you’re reducing your expenses by living in a small or dated house, your items could cost more than your house. Even if an event is covered, you could lose more than your policy will cover. 

Contact your agent and ask about policies that cover your special possessions. You could protect just one thing (like an antique wedding ring), or purchase a rider that adds a specific dollar amount to your overall compensation rate.

2. Flooding 

About 70% of American homes have a substantial flood risk, researchers say.[2] When a storm hits and the water level rises, it could seep into your basement and cause catastrophic damage. The water could also rise enough to damage your entire neighborhood. 

A standard homeowners insurance policy doesn’t cover incidents stemming from natural disasters. A storm event is, by its definition, a natural disaster. You could lose your entire home, and your policy may not cover the loss.

Flood insurance policies offer critical protection for homeowners. Typically, they’re sold as completely separate products by companies that specialize in this type of coverage. 

About 78% of consumers living in high-risk flood areas have this type of insurance.[3] Of them, 43% bought coverage through the National Flood Insurance Program.[3] 

3. Sewage Backups 

The United States Environmental Protection Agency (EPA) estimates that there are at least 40,000 sanitary sewer system overflows every year.[4] Raw sewage can flow into lakes and streams. But in severe cases, it can even back up into basements. 

Poorly maintained pipes can also cause sewage backups, and experts say this type of problem is increasing by 3% annually.[5] Older systems that homeowners haven’t upgraded are particularly vulnerable. 

Homeowners insurance policies rarely cover these problems. Insurance companies expect consumers to keep their homes in good working order. If sewage comes into your home, they will claim this issue is either your problem or the city’s issue, not theirs. 

Read your policy carefully and look for exclusions based on sewage backups. If you see them, ask about a policy rider. Or consider searching for a different insurance plan. 

4. Thunderstorms   

More than 50% of homeowners nationwide are concerned about thunderstorm-related home damage.[6] That’s reasonable, as experts say these events can cause tornadoes, flooding, or both. 

A typical homeowners insurance policy offers some protection against a severe storm. For example, you could file a claim to replace windows that were broken by falling branches or shingles that were ripped off in the wind. 

But if your basement floods because of this storm’s heavy rain, you may not be covered without a specific flood insurance rider. 

5. Outside Contractors 

In 2022, 55% of American homeowners planned some type of remodeling project.[7] Often, that involves hiring contractors who will come into your home and do the work you’re not qualified to perform. Gaps in coverage could leave you exposed. 

Most policies include some kind of coverage for injuries that happen on your property. However extensive work with power tools could lead to catastrophic injuries that cost more than your coverage. 

Before you hire someone to work on your home, ask about licensing and bonding. Professionals who are licensed and bonded have policies that kick in if injuries happen on the job. Those who aren’t bonded and licensed can hold you responsible. 

After your project is complete, contact your insurance agent. Remember that most remodeling projects increase your home’s value, so you may need a bigger amount of protection. 

6. Theft

In 2019, more than 1 million burglaries took place.[8] While your homeowners insurance policy typically includes coverage to protect you after a crime, some limits exist. 

For example, if a criminal steals several valuable items and your policy covers their depreciated value, you could get less than you expect. A depreciated value is what your item is worth right now, not what it costs to replace it. 

Similarly, if your items are stolen away from your home (such as while you’re on vacation), your policy may not help. Some policies only offer protection for thefts that happen on the premises. 

Riders for very valuable items (like musical instruments and jewelry) could give you protection while you’re on the go. Ensuring that your coverage will replace your item is smart too. 

7. Home-Based Business

Approximately 27% of Americans work from home.[9] If you accept customers, store inventory, or hire employees, your homeowners insurance isn’t enough to protect you. 

If a customer comes into your home to do business and trips on your entryway rug, that person could sue you for damages. Your insurance company could (legitimately) say that this is a business expense, not one related to your home. That bill could be all yours. 

A business insurance policy closes this gap and ensures your assets are protected. 

8. Earthquake

About 3% of homeowners are concerned about home damage from earthquakes.[6] More people should take notice. A catastrophic earthquake could severely damage or even level your home. And a standard policy might not provide enough protection. 

Some policies exclude earthquakes altogether, while others cap how much the company will pay in the event of these incidents. An earthquake policy offers critical protection, but few people have it. In California, for example, just 10% of homeowners have this type of coverage.[10]

9. Personal Injury 

A standard homeowners insurance policy offers limited protection if something you do harms someone else. For example, if an errant piece of lawn equipment breaks a neighbor’s window, you’re protected. But what if you say something online that hurts your neighbor’s reputation?

Some homeowners policies will only cover personal liability, not personal injury. That means things like libel and slander aren’t covered. 

Read your policy carefully and look for something called a “personal injury endorsement” or rider. This tiny piece of protection could help in these instances. 

10. Other Structures 

Your homeowners insurance gap might involve other structures on your estate, such as detached garages, sheds, or ADUs. Typically, policies cap this coverage at 10% of the limit on your main dwelling.[11] Is this enough?

During COVID, an increasing number of Americans bought prefabricated backyard sheds and tricked them out as home offices.[12] These buildings might be heated, air-conditioned, wired for sound, and more.

If a building like this is damaged, it could cost more to replace it than your standard policy will cover. You’ll need a rider that covers this specific building to get full protection. 

Frequently Asked Questions About Homeowners Coverage Gaps

We’ve compiled some of the most commonly asked questions about homeowners insurance coverage gaps below.