Last week I talked with a woman who’s buying a home in the Hill Country area of Texas. We were discussing what the policy covered as we reviewed the quote together and she asked a question that was different than I usually get. Normally I’m asked what the policy covers. In most cases this question is phrased along the lines of:
- Does the policy cover water damage from a leaking pipe?
- Is hail damage covered?
- If I have a fire or smoke damage, is that covered?
In this instance, Sheila (not her real name, asked me) “What does the policy not cover?” It was a great question that caused me to shift my thinking for a moment and analyze the policy we were discussing in terms of what it doesn’t cover. All home policies have items they don’t cover, ones exclude from covering. There are three items no home policy covers:
- Acts of war
- Nuclear melt down
- Flood
Acts of War: No home policy covers damage caused by an act of war. Not since the bombing of Pearl Harbor has the United States had an act of war committed on its soil. Like most Americans, I have not actively worried about our being invaded or bombed by a foreign country. North Korea’s threat in April to launch a preemptive nuclear strike against South Korea and the US is the first time since the end of the Cold War in the 1980s where politicians and our military have had the opportunity to contemplate a “serious” act of war by another county and some were highly doubtful of North Korea’s ability to hit our mainland.
There’s some discussion among claims adjusters as to what constitutes an act of war and who determines it. The issue some adjusters raise in this partially theoretical discussion is:
- Is an act of war determined by the county that initiates military action against the United States?
- Or does the President, or Congress, have to declare the action as an act of war?
While it is up to Congress to declare war on another nation, most adjusters are in agreement there would need to be some official declaration from Congress or the President to determine any act considered as war. At this time in our history I, like most people I talk with believe there is little likelihood of this being something we need to worry ourselves about.
Nuclear Melt Down: On April 26, 1986, the Chernobyl Nuclear Power Plant in Ukraine experienced an explosion and fire resulting in the release of a large amount of radioactive particles that drifted over the western part of the then Soviet Union and Europe. Over 500,000 workers were involved in the battle to contain the damage. The official death count from the nuclear accident was 31 people who died as a result from the explosion and fire. However, this count has been disputed frequently and does not take into account the number of people who died from cancer in the surrounding area.
Should an event like this happen at any nuclear plant in the US, homes affected by the radioactive fallout would not be covered by any home insurance policy. The financial impact of such an event would be staggering. Even if the area near the plant were declared “safe” the immediate loss in home values would be catastrophic.
While the Three Mile Island incident from 1979 deals with a nuclear power plant accident, the closest example we have to how such an event could be handled is the Love Canal incident in Niagara Falls, New York. In 1976 it was discovered that chemical waste was being released after heavy rains in an area of Niagara Falls where homes and schools had been built on a site containing 21,000 tons of buried toxic waste. It took two years before people from 900 homes were evacuated. All but 90 accepted the government’s buy-out offer on their homes. The price the government paid for the homes was less than homes were selling for in the then booming economy of that area. Many argued the price offered was better than the dwelling being valueless once the toxic waste was discovered.
I would expect a similar situation to arise in a nuclear accident, and frankly, no one will be happy with the outcome.
Flood: Flooding is not a pipe bursting in your home or the sudden rupture of your water heater. In insurance terms, flooding is water entering a home from outside a home as a result of tidal surge or rising water from creeks, streams, rivers, or lakes overflowing their boundaries. No home insurance policy covers damage to a home or its contents as the result of flooding. Only flood insurance covers that.
Flood insurance is available through most home insurance companies and is ultimately provided by the National Flood Insurance Program (NFIP) and administered by FEMA. There are two potential parts to a flood policy:
- Coverage for the home structure
- Coverage for the contents
In order for the home and the contents to be fully covered, both parts must be purchased. If your home still has a mortgage and is located in a flood zone, you are required to purchase flood insurance for the structure. In this case, there must be enough coverage to pay off the loan. However, I recommend enough coverage be purchased to rebuild the home and cover the contents. I also recommend anyone adjacent to a body of water or in a low lying area buy some level of coverage simply because sooner or later, it will probably be needed.
There are a number of other items home insurance policies don’t cover, but we’ll save that for next week. Share your comments, experiences or questions with me in the comments section of our blog or on our Facebook page. I’d love to hear from you.
