3 most common insurance policy pitfalls
Did you know that not all insurance policies are created equal? Or that policies can exclude some business practices? If you don’t know the ins and outs of your policy, you could end up buying less coverage than you need. In this article, we go over three of the most common insurance policy pitfalls plaguing the home inspection insurance industry. Look for these pitfalls when shopping or renewing insurance to ensure you’re getting the coverage your business really needs.
Your insurance carrier doesn’t cover it.
Exclusions are the portions of your policy that define what you are not covered to inspect. Some exclusions are permanent while others can be modified with an endorsement. (More on endorsements in the next section.) Exclusions allow the insurance company to offer more competitive rates by eliminating business practices that go beyond the policy’s intent. Common non-endorseable exclusions in home inspection errors and omissions and general liability policies include:
- Improper licensure
- Warranty claims
To find out what exclusions lie in your policy, you’ve got to read it. And before you do, you should know whether your policy offers basic or broad coverage.
- Basic policies state what’s covered, and anything that isn’t listed is an uncovered inspection. These policies tend to be easier to read because they’re shorter, but they often offer less coverage.
- On the other hand, broad policies offer more open-ended coverage than basic policies. If an exclusion isn’t on the list, then it’s automatically covered. These policies are a tough read but much more comprehensive. (In case you’re wondering, InspectorPro offers broad policies.)
Keep in mind that there are insurance carriers that advertise to property inspectors but explicitly exclude home inspection services in their policies. If you receive a quote for hundreds or thousands of dollars less than that of a specialized home inspection insurance provider, be sure to study the policy to make sure home inspections aren’t excluded.
Non-inspection isn’t protection.
Remember how we said that some exclusions can be overwritten? Modifications to your policy are made possible by endorsements. Endorsements are amendments to your policy that modify coverage, usually by adding additional coverage or changing exclusions.
That laundry list of specialty inspections in all of your quotes? Those are optional endorsements, which means they aren’t included in your policy unless you add them. Examples of endorseable exclusions include:
- Pool and spa
- Carbon monoxide
- Wind mitigation
- Mortgage and field services
- Sewer scope
Here’s an example of what an endorsement looks like in our policy:
Notice how the endorsement modifies the policy by first deleting the exclusion. Then, it adds coverage to the policy by changing the policy definitions to include pool and spa inspection services.
Optional doesn’t mean unnecessary.
In the case of endorsements, “optional” is not a synonym for “unnecessary.” Endorsements are essential for any inspectors going the extra mile and offering a little extra with their basic inspection. Whether you’re inspecting for termites or radon, if you’re inspecting for it at all, you need to add the endorsement to receive insurance protection. If you’re not carrying the endorsement, you don’t have the related coverage—even if the claim is frivolous.
For example, most mold claims are against inspectors who do not inspect for mold. That means most mold claims lack merit. However, in order to receive coverage for meritless mold claims, home inspectors must carry the mold endorsement. (You can read more about avoiding mold-related claims here.)
Even if your specialty inspection isn’t one of five most common types of claims, you may decide to carry the endorsement to avoid the cost of an uncovered claim. Ultimately, it’s up to you to determine what coverage you need to maintain peace of mind. (You can learn more about endorsements in our article about ancillary inspection services here.)
$1,000,000 might not be $1,000,000.
When you purchase errors and omissions (E&O) and general liability (GL) insurance, your provider will ask you to select what insurance limits you prefer. Insurance limits represent the total dollar amount your insurance company can pay toward your covered claims in a given policy period. Policies write insurance limits in the following format:
Typically, you have options, from $100,000 / $100,000 to $1,000,000 / $2,000,000. The most popular limits choice among home inspectors is $1,000,000 / $1,000,000. But, depending on your insurance policy, million-dollar limits might not really be worth $1,000,000. The reason: sublimits and shared limits.
Sublimits cap certain risks, usually additional services, defined in your insurance policy. Sublimited policies often masquerade as cheaper “broad” policies by offering you ancillary services endorsements with less coverage per individual service. Since we don’t sublimit, here’s an example from another insurance provider’s policy:
In the example above, the insurance carrier has sublimited a home inspector who’d originally purchased $1,000,000 / $1,000,000 in coverage. Note that his million-dollar limits do not apply to his radon inspections. Instead, he receives just $100,000 per claim and per policy period for radon-related issues.
Why do sublimits matter? Firstly, sublimits can be a problem because specialty inspections are already more likely to result in a claim. And most of the time, when you’re paying for a higher limit, you’re trying to mitigate those bigger risks. But you’re not avoiding heavy-hitting claims with your $500,000 limits if your sublimits say that your policy will max out at $250,000 per pool and spa claim.
Worse still, sublimits can cause you to be out of compliance with your state or contractual obligations. For example, if you’re in a state that requires, say $1,000,000 in mold coverage, you cannot meet that requirement with a $100,000 sublimit. That’s why, when choosing your coverage, you have to be sure to take sublimits into account.
Policies with shared aggregate limits will have only one limit for both E&O and GL insurance. Like sublimits, insurance carriers may turn to shared limits as a way of offering inspectors cheaper policies.
The problem with shared limits? Once the shared limit is used up, you are out of coverage. So, if your business has a $300,000 E&O claim followed by a $100,000 GL claim, your $300,000 shared limits won’t help you with that second claim. It’s your responsibility to respond to any claim exceeding that shared aggregate limit.
(You can learn more about (re)choosing your insurance limits here.)
What’s In Your Insurance Policy?
So what’s in your insurance policy? Depending on whether it’s basic or broad, your policy dictates coverage by what it doesn’t or what it does include (respectively).
Be sure to read up on your policy so that you don’t fall for common insurance policy pitfalls and miss out on important coverage benefits. When you renew is a great time to check for policy pitfalls and make sure you know what you’re buying.
Haven’t purchased your E&O and GL coverage yet? Apply for a quote today.
Editor’s note: InspectorPro originally published this post in July 2016. It has completely revamped and updated the post for accuracy and comprehensiveness.