A lot of people are complaining about their home insurance policies. And the loudest cries are from the victims of Superstorm Sandy, who are trying to rebuild on a shoestring budget. These homeowners say their insurance companies, the Federal Emergency Management Agency (FEMA) and the banks are keeping a tight lid on the amount of money they thought they would get.
Now we can add the victims of sinkholes such as the unfortunate residents of Seffner, Florida, where Jeff Bush was swallowed up whole and his neighbors forced to flee their homes. Florida allows people to obtain sinkhole insurance, which may cover some of their needs, but the restrictions on this insurance have tightened up after tort lawyers took advantage of it.
Earth, wind and fire
The basic premise of home insurance is that events emanating from the earth, like earthquakes, floods, water seepage, and even mudslides, aren't covered by a standard homeowners insurance policy. The wind that blows your roof off or flings a branch through your window is a "covered peril." So is fire damage, assuming that you didn't intentionally start the fire.
But there are a lot of variables in a home insurance policy that don't fit into any convenient category and depend on what state in which you reside. Most states, except Tennessee and Florida, where sinkholes are abundant, allow insurers to walk away from this liability. The same is true for earthquakes. But broken gas and water pipes from a bone-rattler could be covered under standard homeowners' or business policies, says the Insurance Information Institute in its 2013 Fact Book.
Auto insurance policies are easier to understand. Either you have collision and comprehensive, which cover you for the damage done to your car by someone else's vehicle, as well as theft and vandalism, or you don't.
But home policies are a complex and different animal. Even law professors complain about the fine print. Daniel Schwarcz, a consumer advocate for the National Association of Insurance Commissioners, which collectively regulates the industry, says insurers market "in such a way that a consumer could never make a competitive assessment." And he's a law professor at the University of Minnesota!
Exclusions to the exclusions
I compared my current home insurance policy with an older one. The size of the booklet and amount of the pages has grown by 25 percent. And there are about twice as many exclusions, including new ones such as "government action" and "fungi," which probably stems from the Chinese drywall issue. There are even exclusions to the exclusions, which might make me happy if I could understand them.
Bold in black
One exclusion, which insurers nearly always put in bold black letters, is that flooding is not covered, unless you have paid for a flood insurance policy from the government. So I find it surprising that many people are under the impression they are covered. And make it an issue.
One reason is that legislators, attorneys general and presidential candidates beat the drum about how their constituents have suffered from these mega storms, and that insurers should reach into their big pockets to make them whole again.
But insurers also admit to another reason: As homeowners insurance contracts become even more complicated, insurance agents, the very people who represent them, only seem to be interested in selling their policies without explaining their policies. It's simple self-interest. If you tell people too much, make it too complicated, they're reluctant to buy your product.
For what it's worth, home insurers aren't the only ones facing criticism. The federal flood insurance program is being roundly criticized for slow and low payments and FEMA loans come with stipulations such as requiring repayment when the flood insurance check finally arrives. Even banks are accused of being stingy in doling out the money they've gotten from insurers for homeowners.
This may sound strange, coming from an insurance journalist, but I stay as far away from the fray as I can. Offered money by FEMA for a hotel rental and a Small Business Loan, I turned both down. And despite living on the fringe of a flood plain, I still have no plans to buy super-expensive flood insurance.
I have already read more than my fair share of fine print.