When Full Coverage Doesn’t Mean Full Coverage: 7 Hidden Costs of Making an Insurance Claim

Insurance covers a lot of things. However, it doesn’t cover everything.

From code upgrade costs to higher future insurance premiums, we’re highlighting some of the hidden costs to consider when making an insurance claim.

Code Upgrades

Replacing a roof could require significant structural changes because of new building codes.

Codes change over time. Insurance covers the cost of replacing your roof. However, it doesn’t always cover the cost of upgrading your roof to meet new building codes.

By law, new structures must meet or exceed modern building codes. You might need extra bracing or electrical updates, for example, to stay up to code.

Unfortunately, a standard insurance policy excludes code upgrade coverage. Unless you’ve specifically added coverage to your policy (which can add a few dollars per month to your premiums), you’ll need to cover code upgrade costs out of pocket.

Debris Removal & Disposal Fees

A standard homeowners insurance policy covers the cost of removing some debris from your property after a claim.

However, your policy may have a cap. It could also exclude certain items:

• Insurance may cover the cost of removing a healthy tree from your property after a claim
• Insurance does not, however, cover the cost of removing an old or rotting tree from your property – even if it fell during the same storm
• Insurance could cover hazardous waste removal and general debris removal
• However, a standard insurance policy caps this compensation to a certain amount, which could cause you to pay out of pocket for complete removal

Check your policy for any debris removal limits or caps. It could limit the payout you receive from a claim – and leave you with a messy property.

Temporary Housing & Living Expenses

A standard homeowners insurance policy includes additional living expense (ALE) coverage.

However, standard insurance policies also have loss of use coverage caps that could cause you to pay a significant amount out of pocket.

Some insurers also make it easy to exceed coverage caps because of claim delays. They might take months to close your claim, for example, leaving you with significant additional living expenses that aren’t fully covered.

Or, some insurers provide compensation that doesn’t reflect real-world hotel or dining costs. They might offer $125 per night for a hotel, for example, when every hotel in your city is charging $300 per night after a recent storm.

If you’re forced to leave your property because of a covered event – like a storm – then keep track of all receipts and expenses.

Higher Deductibles for Specific Storm Types

Depending on your location, you may need to pay a higher deductible for specific claims.

Homeowners in wind-prone regions of the Midwest or Southeastern United States, for example, often have special wind, hail, hurricane, or named storm deductibles.

Here’s how it works:

• In certain regions (like wind-prone or coastal areas), homeowners pay a separate deductible for certain types of claims
• Damage caused by wind, hail, hurricanes, or a named storm, for example, could trigger a special deductible
• You can still make a claim, and insurance will still cover damage, but you’ll pay a different deductible
• Typically, these deductibles are percentage-based – not a flat amount; if your ordinary homeowners insurance deductible is $2,500, for example, then your insurer might charge a named storm deductible of 5% of the value of your home
• If your home is worth $400,000, and you have a 5% deductible and a named storm damages your home, you’ll pay a deductible of $20,000 – significantly more than the average deductible of around $1,500 to $2,500

Check your policy to determine if you’ll pay a different deductible for this specific claim.

Uncovered Secondary Damage

You might have great insurance coverage. However, that doesn’t mean insurance covers every bit of damage to your property.

Some of the uncovered secondary damages that may not be covered by insurance include:

• Landscaping damage
• Damage to outbuildings (like sheds)
• Mold damage
• Flood damage
• Wear and tear-related damage

The Full Cost of Replacing Damaged Items

There are two broad types of homeowners insurance policies: actual cash value and replacement cost policies. As the NAIC explains, the type of policy you have will significantly impact your claim.

• Actual cash value (ACV) policies cover the cost of replacing items minus depreciation. You may have bought a TV for $2,500 back in 2017. However, that TV isn’t worth $2,500 today.
• Replacement cost value (RCV) policies cover the cost of replacing items in your home with new items of a similar kind and quality without deducting for depreciation. RCV policies tend to have higher premiums but pay out higher compensation after a loss.

Because of this difference, your insurance policy might not cover the full cost of replacing damaged items.

If a fire destroyed your living room, for example, and the thousands of dollars’ worth of furniture inside it, then you might assume insurance will reimburse you fairly. If you have an actual cash value policy, however, then you might only receive a fraction of the amount you expected – and not enough cash to replace the items with ones of a similar kind and quality. That’s the trade-off of ACV vs RCV policies.

Higher Future Insurance Premiums

A successful homeowners insurance claim could lead to higher premiums in the future.

Generally, but not always, insurers increase future premiums based on the severity of the claim. If you have made two or more serious claims in a short period, then your premiums could rise even higher. In some cases, insurers even cancel policies because of an excessive number of claims.

Making a homeowners insurance claim is not guaranteed to raise premiums. It’s impacted by things like:

• The type of claim
• The size of the claim
• Your personal claims history (say, the number of claims made over the last 2 to 10 years)
• Your state (some states restrict insurers from raising rates after a claim)
• Your specific insurer and insurance policy

Some insurers raise premiums 50% or more after a serious claim, like a total loss fire. Others don’t raise premiums at all for your first claim, regardless of severity.

Insurance is all about risk: homeowners who have made a claim may be more likely to make a claim in the future, according to your insurer. If your insurer believes you’re riskier to insure, your insurer may raise premiums.

Overwhelmed? Contact a Public Adjuster

The average homeowner only goes through one or two major claims in their life.

Public adjusters have expertly handled hundreds – and even thousands – of claims. Many have years of industry experience. They’re licensed insurance industry professionals with a simple goal: to maximize the value of your insurance claim.

Overwhelmed? Tired of going back and forth with your insurance company? A public adjuster may be able to help.

Schedule a Free Consultation

Contact ClaimsMate today for a no-cost consultation with a public adjuster who can help you navigate the hidden costs of insurance claims and apply your coverage fairly.

Stephanie Corona

Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.