5 Home Insurance Nightmares (and How to Avoid Them)

Many homeowners assume they’re protected by a home-insurance policy, but there are exceptions that can prove costly. Here are some common insurance-policy pitfalls and what homeowners can do about them.

By Josh Sherman | 5 minute read

Insurance industry experts say homeowners often don’t fully understand their policies, and this can have serious consequences.

Earlier this year, disaster struck for one northern Saskatchewan family after a wildfire razed their home.

To make matters far worse, Tessa and Leonardo Santana had recently fallen on hard times. As a cost-cutting measure prior to the blaze, they had cancelled their home-insurance policy. When their home went up in smoke not long thereafter, they were faced with the prospect of having to pay out of pocket — and it was money that the couple did not have.

While the Santanas story is a tragic reminder of the importance of home insurance, sometimes, having coverage is not enough. Home owners are sometimes surprised to learn what’s not covered by a basic home-insurance policy.

So suggests Anne Marie Thomas, director of consumer and industry relations for the Insurance Bureau of Canada, which is an industry association that represents Canada’s home, auto, and business insurers. “People should be having a conversation with their insurance broker or agent, because not all policies are the same. Not all policies cover the same thing, or at the same amount,” she tells Wahi. 

Wahi spoke to Thomas and other industry experts about potential home-insurance nightmares and what homebuyers and owners can do to protect themselves.

1. Issues During Home Vacancy

Whether you’re going on vacation, or vacating your home during the selling process, you could find your coverage void while you’re away. “With a home-insurance policy, home vacancy is a real concern to an insurance company,” explains Thomas. “As you can well imagine, lots of things can happen to an empty house,” she continues. 

“If you leave in December and go to Florida and you’re coming back in February and a pipe bursts in your house, if you had nobody check your house in all that time your insurance company is going to say we are not paying,” she says.

Up front, most insurance policies won’t provide coverage if you’re absent from your property for more than 30 days. If you’re planning on being away from home for a month or more, Thomas says informing your policy provider is a must. In doing so, you can try to work out an arrangement to maintain coverage, such as having a friend conduct weekly check-ins on your home to make sure pipes haven’t frozen, for example. “You have to let your insurance company know.”

For homeowners who are staging their home while selling, Thomas recommends checking to see whether damage to staged items is covered.  

There are also liability concerns to be aware of with vacant homes. “If your home is vacant or empty and you’ve got a ladder that’s on your grass and somebody trips over it, you could be held responsible for that,” she warns. “You always have to look at your property from a risk perspective.”

2. Items Left in Storage Get Lost or Damaged

Most insurance policies do provide some level of coverage for contents held off site in a storage unit. However, the policy limit could be much lower than is expected. “Sometimes, contents in storage, up to a certain amount, might not be covered,” Thomas explains, noting that typically 10% of the policy amount can be put towards items damaged, lost, or stolen while in storage. “If you put everything you own into a storage unit for two months you might be surprised to find out you don’t have coverage.”

3. Pests Cause Damage to Your Home

Vermin are more than an annoyance for homeowners. They can cause costly damage to a property if not addressed. Worse still, insurance policies typically won’t cover the costs incurred. “Raccoons in your attic, squirrels in your attic, the damage they do is not covered. That’s why it’s really important to make sure your roof is sealed,” says Thomas. 

Pest-related damage is not covered by home-insurance policies because coverage is intended to protect against sudden and accidental scenarios. “A property-insurance policy is not a home-maintenance policy,” says Thomas. “If you just didn’t fix the hole in your roof, that’s neither sudden nor accidental. It’s poor maintenance, so that would not be covered,” she explains. 

4. Certain Instances of Water Damage

“Water or sewage backing up through drains or toilets is not covered unless you add a sewer backup endorsement,” says Samantha Schmidt, an underwriting specialist at Surex who recently shared with Wahi the factors that can drive up home insurance costs. (An endorsement is a policy add-on.)

Even with a sewage endorsement, the policy amount may fall short, depending on the extent of the damage. “Some policies might only cover you for $25,000 for a sewer-backup claim. That might not be enough. That might just pay to dry out your walls,” says Thomas. 

While homeowners could be on the hook if the sewer backs up during a heavy rainstorm and no additional coverage has been purchased, generally the pipes inside your condo or house are safe, adds Thomas.

5. Changes to the Home (or How You Use It)

Are you planning a reno project? Notify your insurer. Ditto if you’re launching a home business or putting your basement up for rent. “It all depends on the type of business,” Thomas clarifies. If it’s a startup consulting business running out of your kitchen, you may only require an add-on to your existing policy called a business in the home extension.

However, if you have regular clients visiting your home or are using the property to stockpile merchandise, you may need a separate commercial-insurance policy. “Equipment used for business purposes is usually excluded unless specifically endorsed,” notes Schmidt.

When it comes to adding specific items to your policy, Schmidt offers up additional advice: “Keep an inventory with photos and receipts. This helps to avoid the back and forth with the claims adjuster and ensures that you are adequately indemnified for everything you lost,” Schmidt continues.

Ultimately, failing to notify your insurer of substantial changes to the use of your home can void your entire policy in the event of damage — regardless of the cause. “If you have a business operating in your home that your insurance company is aware of and you have a fire in your kitchen, the insurance company can say I don’t care that the fire wasn’t related to the business,” says Thomas.