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You’ve got home insurance. You’ve got car insurance. Maybe even life insurance. You feel covered — safe. But as insurance expert Karl Susman warned in a recent episode of Insurance Hour, most people’s coverage isn’t nearly as complete as they think.
“Most people believe they have full coverage,” Susman said. “But the truth is, nobody really does. There are gaps — big ones — and if you don’t know what they are before disaster strikes, you could lose everything.”
These hidden gaps aren’t obscure fine-print tricks. They’re common oversights that quietly cost homeowners and drivers tens of thousands of dollars every year. Here are the five biggest insurance blind spots you probably don’t know about — and how to close them before it’s too late.
The Personal Property Payout Trap
Your home insurance policy promises to replace your belongings after a fire, burglary, or disaster. But “replacement” doesn’t always mean what most homeowners think it does.
There are two very different types of coverage:
- Actual Cash Value (ACV): Pays the depreciated value of your belongings. A ten-year-old couch may only be worth a fraction of its original cost.
- Replacement Cost Value (RCV): Pays what it costs to buy the item brand new at today’s prices.
“If your policy pays out actual cash value,” Susman explained, “you’re in for a rude awakening. You’ll get a check for what your items are worth now — not what it costs to replace them.”
How to fix it:
Check your declarations page or ask your agent whether your personal property is insured for ACV or RCV. If it’s ACV, upgrade immediately. The price difference is usually small, but the protection difference is massive.
The Sewer Backup and Water Damage Loophole
Water damage is one of the most common — and most misunderstood — claims in homeowners insurance. A standard policy does
not automatically cover sewer or sump pump backups.
“People call me all the time,” Susman said. “They had sewage come up through their bathroom or basement, and the insurer says it’s not covered. They’re stunned — but it’s right there in the exclusions.”
Clean-up, flooring replacement, and remediation from a backup can easily run into the tens of thousands of dollars.
Just as important:
flooding from rising outside water is never covered by a standard homeowners policy.
How to fix it:
- Add a
Water Backup Endorsement (often under $100 per year).
- Purchase a
separate flood insurance policy through FEMA’s National Flood Insurance Program or a private carrier.
The Wildfire and High-Risk Area Coverage Shortfall
In wildfire-prone areas, not all homeowners policies protect you equally. Many policies now limit or cap
extended replacement cost coverage, the extra funds needed when post-disaster rebuilding costs explode.
“When a wildfire hits,” Susman explained, “everyone’s rebuilding at once — lumber prices jump, contractors are booked out, and costs skyrocket. If your policy only covers your stated limit, you could be short hundreds of thousands.”
Homeowners forced onto the California FAIR Plan face another problem: the FAIR Plan covers
fire only, not liability, theft, or water damage.
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How to fix it:
- Carry
extended replacement cost of 150%–200% of your dwelling limit.
- Update your rebuilding valuation
every year to reflect inflation.
- If you’re on the FAIR Plan, add a
Difference in Conditions (DIC) companion policy to restore liability, theft, and water coverage.
The Auto Insurance “Full Coverage” Mirage
Many drivers proudly say they have “full coverage.” But there is no such thing.
“That phrase doesn’t mean what people think it means,” Susman said. “You might have collision and comprehensive, but that doesn’t mean you’re fully protected.”
Typical auto policies include liability, collision, and comprehensive — but often exclude critical protections such as:
- Gap Insurance: Covers the difference between what your car is worth and what you still owe on a loan or lease.
- Rental Reimbursement: Pays for a rental while your car is being repaired.
- Uninsured/Underinsured Motorist Coverage: Protects you if the at-fault driver has little or no insurance.
- Medical Payments or PIP: Covers medical costs regardless of fault.
How to fix it:
Ask your agent to review optional coverages — especially gap, rental reimbursement, uninsured/underinsured motorist protection, and medical payments. These typically add only a few dollars per month and can save thousands after an accident.
The Liability Limit Oversight That Puts Your Net Worth at Risk
Every home, auto, and renters policy includes liability coverage — but most people carry far too little.
“If someone gets seriously hurt on your property,” Susman warned, “you’re not just at risk for medical bills — you’re at risk for your entire net worth.”
Standard liability limits often range from $100,000 to $300,000. A single severe injury lawsuit can easily exceed $1 million. Once your policy limit is exhausted, the rest comes out of your pocket.
How to fix it:
- Increase liability limits to
at least $500,000 on home and auto.
- Add a
personal umbrella policy for $1–$5 million of extra protection.
Umbrella policies are surprisingly affordable — often under $20 per month.
The Earthquake Insurance Gap Most Californians Ignore
Fewer than 10% of California homeowners carry earthquake insurance, even though the state sits on some of the world’s most active fault lines.
“Your homeowners policy does not cover earthquake damage,” Susman stressed. “If the ground shakes and your house cracks, you’re on your own unless you have a separate policy.”
Coverage is available through the California Earthquake Authority or private carriers, with flexible deductibles and coverage levels.
Why These Gaps Exist in the First Place
These exclusions exist because of how insurance is regulated and priced. Policies cover sudden and accidental losses — not predictable, large-scale risks like flooding and earthquakes. At the same time, strict rate controls limit how much insurers can charge, leading them to restrict coverage instead.
“Insurers aren’t trying to trick people,” Susman said. “They’re trying to survive in a system where costs keep rising but pricing is restricted.”
For consumers, that means vigilance is essential.
How to Audit Your Coverage and Protect Yourself
Karl Susman recommends this annual insurance checkup:
- Review your
declarations page every year.
- Ask your agent for a
coverage-gap review.
- Photograph or video your personal property and store records digitally.
- Update coverage after
life changes like remodeling, buying a car, or starting a business.
- Confirm that your
dwelling limit keeps pace with inflation.
Final Thoughts: Insurance Is Not “Set It and Forget It”
Insurance is not static. Risks evolve. Construction costs rise. Coverage that felt adequate years ago may now be dangerously insufficient.
“You can’t just buy a policy once and assume you’re safe forever,” Susman said. “Insurance is a living thing. It needs to evolve with you.”
Closing these hidden gaps isn’t about over-insuring — it’s about protecting your home, your savings, and your future.
Because when disaster strikes, the worst words you can hear aren’t “total loss.”
They’re these:
“I’m sorry — that’s not covered.”
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