What's Not Covered by a Homeowner's Policy?

It's important to know the types of risks your homeowner's policy covers. Just as important -- and possibly more so -- is to know what risks your policy does not cover. For our purposes, the three main risks that your comprehensive policy normally does not cover are:

• flood damage (including the water damage caused by a hurricane)
• damage caused by ground movement (such as earthquakes and soil erosion)
• claims arising from a business use of the premises.

Claims arising from a business use of the premises are, by far, the most important exclusion for home-business operators.

We say "normally does not cover" because some states require insurance companies to cover some of these risks (for example, California requires coverage of earthquakes), and because you can often obtain coverage by purchasing -- at additional premium cost -- a policy rider. A policy rider is an additional provision that you and the insurance company agree to add to a policy, usually at an additional cost to you.

Business-Use Exclusion. Dealing with this exclusion is critical. You don't want to ignore it, hoping that it won't apply to your home office situation. Unless you have taken steps to have your home business covered, your homeowner's policy will exclude it from coverage.