Homeowners Insurance: Is Terrorism Covered?

Homeowners insurance typically excludes war and nuclear accidents, but acts of terrorism can fall into a gray area.

Acts of terrorism should be covered by your homeowners insurance policy, unless there's an explicit terrorism exclusion. Image: Jocelyn Augustino/FEMA

The terrorist attacks of Sept. 11, 2001, resulted in more than $30 billion in insurance claims. In the wake of 9/11, Congress passed the Terrorism Risk Insurance Act of 2002, which shored up availability of commercial coverage for terrorism. Residential coverage wasn’t addressed by the act, however, leaving the question of whether terrorism is covered by homeowners insurance unanswered.

“Most homeowners insurance policies have clear language about war, but don’t expressly exclude terrorist acts,” says Amy Bach, executive director of United Policyholders, a consumer advocacy group in San Francisco. Typical polices cover damage resulting from riots or civil unrest, she says, and exclude acts of war and nuclear disasters. Terrorism can fall somewhere in between.

Is terrorism covered?

The war exclusion in typical homeowners policies is geared toward acts of aggression by military forces. Civil wars are lumped into the war exclusion, and it doesn’t necessarily matter whether a war is declared or undeclared. Terrorism is generally regarded as more akin to a criminal act designed to further a social or political objective.

Unless there’s an explicit terrorism exclusion in your policy, most homeowners should be covered in an act of terrorism, says Ashley M. Hunter, founder of HM Risk Group, an insurance broker in Austin, Texas. However, Hunter adds that the concern is relatively new, and little case law has been established as precedent to guarantee coverage in every instance. Realistically, if you ever need to file a terrorism-related claim, expect it to be handled on a case-by-case basis.

Several states, including Florida, Massachusetts, New York, Ohio, Pennsylvania, and Texas, forbid terrorism exclusions, according to a report on terrorism’s impact on homeowners insurance from the Missouri Bar Association. Check with your state’s insurance commissioner. Even so, Bach warns that it’s possible an insurance company would try to classify a large-scale terrorist attack as an act of war.

10 costliest catastrophies in U.S. history

Hurricane KatrinaAug. 2005$41.1 bil$45.1 bil
9/11 terrorist attacksSep. 2001$32.5 bil$39.4 bil
Hurricane AndrewAug. 1992$15.5 bil$23.7 bil
Northridge earthquakeJan. 1994$12.5 bil$18.1 bil
Hurricane IkeSep. 2008$12.5 bil$12.5 bil
Hurricane WilmaOct. 2005$10.3 bil$11.3 bil
Hurricane CharleyAug. 2004$7.5 bil$8.5 bil
Hurricane IvanSep. 2004$7.1 bil$8.1 bil
Hurricane HugoSep. 1989$4.2 bil$7.3 bil
Hurricane RitaSep. 2005$5.6 bil$6.2 bil

Source: Insurance Information Institute report

Review your homeowners policy

Homeowners should set aside an hour to go over carefully the language of their homeowners insurance policies, advises Bach. In particular, look for specific exclusions for war or terrorism. Don’t hesitate to call your insurance agent if the wording is unclear, and request a plain-English explanation in writing.

If your insurer balks at paying for damage done by a terrorist act, Hunter says you may still have some recourse under provisions like the “loss of power” coverage provided in typical homeowners policies. Loss of power, for example, can cover things like pipes bursting in winter because the furnace isn’t working, or food and other perishables spoiling because refrigerators and freezers aren’t running. It might not pay for all the damage suffered, but it’s something.

Added coverage is impractical for most

Standard homeowners insurance is relatively affordable. The average cost of a policy is $822 a year. Some specialty insurance companies like Chubb and Lexington Insurance might offer terrorism endorsements for residences, but the cost—perhaps in the tens of thousands of dollars annually for a luxury home in a high-risk location—makes it prohibitive for the vast majority of homeowners.

“If you’re one of the Donald Trumps of the world and you own a full floor of a penthouse, then it might be worth it,” says Hunter. “Otherwise, you’re probably OK with the policy you have.”