Physical Loss in Homeowners insurance policy

What is Physical Loss in a Homeowners Insurance Claim?

Homeowners insurance companies require that a physical loss to the insured home item forms the basis of a claim. However, there have been arguments about what exactly counts in this category.

What is Physical Loss?

A physical loss in home insurance means a tangible change or alteration to a home item due that is caused by the insured peril. The damage should be clear and visible to the naked eye. It is good to note that not all changes in appearance do not count. For example, if someone accidentally paints your home blue instead of yellow, will that include a loss? The color is visible to the naked eye, but it does not imply that the wall is damaged.

A physical loss is a straightforward and demonstrable modification of the item. Suppose you insure your home against fire. But in an unfortunate event, your home is razed down to ashes. The damage is apparent to the naked eye and the home insurance will compensate you for the loss (provided you have fire coverage).

The physical loss should be directly related to the peril. That is to say, if the wind, for instance, destroyed one piece of roof shingle, the insurance company will only compensate for that piece. If your contractor causes further damage during the repair of that shingle, the insurance company will not be liable.

What is not Physical Loss?

It is worth noting that if the insured property loses its value, it does not form a basis for physical loss. An example will be if you have insured a TV set. After a while, the market value of the television depreciates. That doesn’t count with regards to home insurance principles. The fact is, there is a financial difference between the time you began paying the premium and the present day in its market value. However, this does not constitute a loss.

Furthermore, intentional alteration of items does not constitute a physical loss. Coverage stipulates compensation of the loss only in the event of unexpected disasters. Thus, if the disaster is by choice, the insured property would not be covered.

Temporary impairment of the usefulness of an insured item also does not result in physical loss. For example, if you have insured a laptop, then a virus attacks the operating system. You shall lose information in the process, but that does not count under your coverage. Installation of another operating system returns the laptop’s normal function, hence it is not considered a loss.

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