Many homeowners assume that their insurance policy covers every type of damage or loss, but that’s rarely the case. While home insurance provides valuable protection, it also has limits and exclusions that can catch people by surprise. Not understanding what your policy does and doesn’t cover could leave you with unexpected expenses after a loss.
Many of the most common insurance myths come from outdated information, anecdotes from others or generalized assumptions about how coverage works. Because every policy is different, it’s important to understand what your own homeowners’ policy covers before you find yourself needing to file a claim. Being aware of the facts can help you avoid coverage gaps and make more informed decisions about protecting your home.
Myth #1: Home Insurance Covers Flood Damage
This is one of the most widespread and costly insurance myths. Many homeowners mistakenly believe that their standard home insurance policy covers flood damage. In reality, homeowners’ policies typically exclude flood damage that’s caused by rising water, storm surges, groundwater or runoff. This means that home insurance does not cover damage from flooding under standard policy terms.
When it comes to home insurance coverage, there is an important distinction between types of water damage. For example, a sudden burst pipe that damages your ceiling is typically covered as a sudden and accidental peril. However, damage from a river’s overflowing banks or a hurricane-driven storm surge is not.
The consequences of this common misconception can be detrimental. During Hurricane Harvey in 2017, 68 percent of flooded homes in Harris County, Texas, were located outside of the special flood hazard area. Consequently, many of those homeowners lacked flood insurance because they believed that it was unnecessary.
Nationally, only about four percent of single-family homes carry flood insurance, even though an estimated 32 percent of flood damage occurs outside of the designated high-risk flood zones.
Homeowners, especially those living in flood-prone areas, should consider purchasing separate flood insurance. Coverage can be obtained through FEMA’s National Flood Insurance Program (NFIP) or the growing private flood insurance market. Without this coverage, homeowners could face significant uncovered losses if their home is damaged due to flooding.
Myth #2: Earthquake and Mudslide Damage Are Covered
Another common misconception is that earthquake and mudslide damage are covered under standard homeowners’ insurance. In reality, most policies exclude damage from earth movement, which includes earthquakes, mudslides and sinkholes.
Homeowners in seismic or landslide-prone regions may need a separate endorsement or a specialized earthquake insurance policy. In some states, such as California, dedicated programs like the California Earthquake Authority, which may be accessed through your home insurance advisor, exist to help provide coverage after private insurers significantly reduced their availability in the 1990s.
Myth #3: Home Insurance Covers All Your Personal Belongings
Many homeowners assume that personal property coverage applies to every item that they own without any limits. In practice, standard homeowners’ policies assign personal property coverage as a percentage of the dwelling value (often between 50 and 70 percent), and then they impose sublimits on certain categories of valuables.
For example, coverage for theft of jewelry is often limited to $1,500 or $2,000 under a standard policy. Artwork, collectibles and high-end electronics may face similar caps.
This means that if a homeowner owns a $10,000 engagement ring and it is stolen, their homeowners’ policy may only reimburse up to the $2,000 sublimit, unless the ring has been scheduled under the policy or with an inland marine floater.
Myth #4: Home-Based Businesses Are Automatically Covered
The rise of remote work and home-based entrepreneurship has made this myth increasingly relevant. Standard homeowners’ policies usually do not cover business equipment or liabilities for home-based businesses. Business inventory, specialized equipment and professional liability claims are generally excluded.
Separate business owners’ policies, home business endorsements or standalone commercial coverage may be necessary to protect home office equipment and business liability.
Importantly, homeowners should always disclose home business activities to their insurance advisor. Failing to do so could create coverage gaps that extend beyond just the business – it could potentially affect the broader homeowners’ policy.
Myth #5: Landlord Insurance Covers Tenants’ Belongings
Renters may assume that their landlord’s insurance protects their personal belongings. This is incorrect. Landlord insurance typically covers only the building structure and the landlord’s own liability. As a tenant, your landlord’s insurance does not cover your personal belongings.
Renters need their own renters’ insurance policy to protect their personal liability and property. Without renters’ insurance, you’ll pay out of pocket for losses from events like theft, fire or water damage to your possessions. Renters’ insurance also provides liability coverage for injuries on your property, which can help protect against costly legal claims.
Renters’ insurance is not always required by landlords, but it is generally affordable and provides important financial security. Even if a landlord does not require you to have it, the cost of a renters’ insurance policy is typically modest compared to the protection that it offers.
Myth #6: Insurance Covers All Maintenance and Repair Issues
Some homeowners believe that their insurance policy functions like a home warranty, paying for all repairs no matter the cause. However, in reality, home insurance is designed to cover sudden and accidental damage, not routine maintenance issues.
Damage from gradual deterioration, neglect or deferred maintenance is excluded from most home insurance policies. A roof that slowly decays over the years, plumbing that seeps due to lack of upkeep or a foundation that cracks from settling are the homeowner’s responsibility to address. Additionally, damage from frozen plumbing may be excluded if the homeowner did not maintain adequate heating or winterize their property.
The distinction matters when multiple causes contribute to a loss. If wind damages a roof (a covered peril) and the homeowner delays repairs, which allows water to leak in and cause interior damage, the insurer may limit or deny the water damage claim because it resulted from the homeowner’s negligence towards the roof repair. Regular home maintenance is not just good practice; it’s essential for preserving coverage.
Myth #7: Vacancy Does Not Affect Coverage
Many homeowners assume that their insurance coverage remains unchanged regardless of whether anyone is living in the house. In fact, many policies contain vacancy clauses that limit or exclude coverage if a home is unoccupied for an extended period (often 60 consecutive days).
Vacant homes face elevated risks of vandalism, theft and undetected water damage. Insurance companies recognize these heightened risks and may exclude claims for these or other perils once the vacancy threshold is crossed. A burst pipe in a vacant house, for example, could go unnoticed for weeks, resulting in extensive damage that a homeowners’ policy may not cover.
Homeowners who plan to leave a property unoccupied for an extended period of time should review their policy terms regarding vacancy and notify their insurance advisor of prolonged absences. Vacant property endorsements may be available to maintain protection during these periods.
Myth #8: Liability Coverage Only Applies to Injuries on Your Property
A surprising number of homeowners believe that their liability coverage applies solely to incidents that occur on their property, but personal liability coverage under a homeowners’ insurance policy is actually broader than you may think. It can protect against legal responsibility for injuries or property damage caused by the homeowner or covered family members, whether the incident happens at home or elsewhere.
For example, if your child accidentally damages someone else’s property while playing at a park, your homeowners’ personal liability coverage may help pay for the damage. It could also help cover legal costs and settlements if you’re found legally responsible for someone else’s injuries or property damage.
Many home insurance policies also include medical payments coverage, which can help pay for more minor injuries to guests on your property, regardless of who was at fault.
However, liability coverage does have its limits. It generally doesn’t apply to accidents involving motor vehicles, which would be covered under an auto insurance policy. Some homeowners’ policies may also exclude or limit coverage for certain dog breeds. It’s also important to remember that homeowners’ insurance should not be treated as a replacement for health or life insurance. Each type of policy is designed to protect against different risks.
Myth #9: Home Insurance Should Match Market Value or Purchase Price
This myth can directly lead to your home being underinsured. Many homeowners set their dwelling coverage limit based on what they paid for their house or its current market value. However, neither figure accurately reflects the amount that may be needed to rebuild the home.
Instead, insurance should reflect the home’s replacement cost – the current cost of rebuilding the home using comparable materials and labor. Market value includes the land and location premium, neither of which an insurer needs to replace after a covered loss.
The rebuild cost is often higher than the market value of a home, especially in environments where construction and labor expenses are rising. Because of this, homeowners may be underinsured if their coverage is based on their home’s market value rather than its replacement cost.
For example, if a home insured at its purchase price of $300,000 would actually cost $350,000 to rebuild, then the homeowner could be left covering the $50,000 gap themselves.
And, this doesn’t even take into account the 80 percent rule. Under this rule, if your home is not insured for at least 80 percent of its replacement cost, you could face penalties for being underinsured, and your insurance company may not cover the full amount of the claim.
This is why coverage amounts should be evaluated periodically to reflect local construction costs, home improvements and inflation.
Myth #10: Home Insurance Covers Damage from Pests and Mold
Home insurance does not cover damage from pests or mold in most circumstances. Many homeowners’ policies exclude damage from pests, including termites, rodents and insects, and mold infestations. These are considered to be preventable problems that fall under the maintenance responsibilities of the homeowner.
Mold damage is generally excluded unless it results directly from a covered peril. For example, if a sudden burst pipe causes water damage and mold develops as a result, the mold remediation may be partially covered by the homeowners’ insurance policy. However, mold that grows due to long-term humidity, poor ventilation or deferred repairs would not be covered. And, even if mold is covered as a secondary effect of a covered event, the insurer may impose strict limits on mold remediation expenses.
Endorsements for mold can sometimes be added for extra protection, but availability and cost vary by insurer. Preventive maintenance and regular pest control treatments remain the first line of defense against these risks.
How to Separate Home Insurance Fact from Fiction
Understanding what a policy actually covers requires more than just going off assumptions – it requires understanding the policy itself. Homeowners should carefully review three key sections of their policy: the declarations page, the insuring agreement and the exclusions section. Many insurance myths stem from simply overlooking the policy’s exclusions.
Several practical steps can help homeowners avoid coverage surprises:
- Review your policy documents. Don’t rely on what you think is covered; instead, read the exclusions and limitations sections of your policy. Different policy forms offer different levels of protection, and assuming that one policy works like another can be costly.
- Conduct annual coverage reviews. Homeowners should periodically review their insurance coverage with their advisor, especially after major life changes, purchases of expensive items or home upgrades or renovations.
- Document your personal belongings. In addition to potentially streamlining the claim process, maintaining a detailed home inventory with photographs, receipts and appraisals can help ensure that your coverage limits accurately reflect your needs. This is especially important for high-value items that may need to be scheduled separately.
- Ask questions about endorsements and add-ons. Standard policy exclusions should be verified rather than assumed. If your property faces flood, earthquake or other specific risks, ask your insurance advisor about endorsements or supplemental policies.
- Compare coverage based on your individual risk factors. Geography, home age, construction type and personal circumstances all influence what coverage is appropriate. Home insurance is not legally required in most cases, but mortgage lenders typically mandate it, and the right policy should protect more than the lender’s interest – it should protect the homeowner’s financial security.
Is your home protected?
Many of the most common myths about home insurance share a pattern: they assume broader coverage than what standard policies provide. Whether it involves flood damage, pest infestations or home-based business liability, the gaps between perception and reality could result in significant financial exposure.
Every homeowner’s risk profile is different, and cookie-cutter assumptions about insurance coverage could leave money and protection on the table. That’s why Higginbotham works closely with individuals and families to evaluate their risks and design tailored insurance solutions that align with their needs and circumstances. Connect with one of Higginbotham’s personal insurance specialists today to get a personalized coverage consultation and make sure your home is protected based on the facts, not the myths.
