Recently an insurance company has been run­ning a national advertising campaign asking if you know what your insurance policy covers. In the commercial, the narrator states that “you might be surprised at what’s hiding in your coverage.” If you have not taken the time to read your insurance policy recently, you may not be aware of coverage limitations that exist within it. It’s better to be aware of these limitations before something happens, so that you can assess whether you are comfortable with them or whether you want to change your coverage.

Recently, our firm had a chance to review two provisions that limited coverage. Let’s take a look at them to show how these provisions could impact you.

Step-Down Coverage

The first provision reviewed was a “step-down” provision. A step-down provision lowers the limits of available coverage under particular sce­narios. The insurance policy we reviewed had $100,000/$300,000 in available uninsured motorist coverage, but also included a step-down provision. The provision stated that if someone was operating your vehicle with your permission, but was not listed on the policy and was not a family member living in your house, the available UM/UIM coverage would only be $25,000/$50,000.
For example, assume you employ a nanny and one day you allow her to use your vehicle to run an errand. While on this errand, she is rear-ended by an uninsured driver. You might think that the $100,000 in uninsured motorist coverage you have in your policy would be available to her. However, because of the step-clown provision in your policy, she would only have $25,000 in coverage available to cover her losses.

Roof Surface Payment Schedule

The next insurance policy that we reviewed was a homeowner’s policy that included a “Roof Sur­faces Endorsement.” As part of this endorsement, a payment schedule was included. Most people likely assume that their homeowner’s policy will pay for the replacement of their roof in the event of damage, minus their deductible. Well, if your pol­icy included this “Roof Surfaces Endorsement,” you could be responsible for paying a significant por­tion of the cost to replace your roof.

For example, one day your roof is damaged after being hit with one of Colorado’s infamous hail storms. The next day your insurance company comes to inspect your roof and determines that the damage warrants a complete replace­ment of your roof. Perhaps you are actu­ally excited to be getting a new roof, as your current roof has somehow survived 20 years of Colorado weather but was starting to look dated. That excite­ment quickly turns to outrage as your insurance company informs you that it will pay for a new roof, but only up to 40{f8270180bd013a86e8a7bdc2029d331e433a151f411edd98c48642ec5f8162bf} of what it will cost to replace.

How can that happen? Well, because your insurance policy has the Roof Surfaces Endorsement, the insurance company may only have pay up to a certain percentage of the cost of the new roof depending on the age of your current roof. As the roof gets older, the insurance company pays a smaller and smaller percent­age. For example, if your roof was a year old, the insurance company would cover 97{f8270180bd013a86e8a7bdc2029d331e433a151f411edd98c48642ec5f8162bf} of the cost. If it was a 10 years old, it would only pay 70{f8270180bd013a86e8a7bdc2029d331e433a151f411edd98c48642ec5f8162bf} and if your roof was 25 years or older, only 25{f8270180bd013a86e8a7bdc2029d331e433a151f411edd98c48642ec5f8162bf} would be covered. You would be responsible for the remainder of the cost as well as the deductible.

Review Your Policy So You Can Make An Informed Decision

Are provisions and limitations, like the two examples given above, bad? Not necessarily, as long as you are aware of them and can make an informed decision about whether you are comfortable with the pro­visions and are willing to accept the risk associated with having them in your policies. Are they enforceable? It depends on the particular language in your insurance policy as well as the applicable law. In any event, talk to your insurance agent about whether the provision can be removed or modified, or whether you need to find a new insurance company. You’ll have to weigh the potential of paying more for cover­age against the increased protection that the new policy may provide.
Don’t wait until it is too late to make a change to your policy. The worst time to be surprised about what’s hiding in your coverage is after you have to make a claim.