Homeowners insurance is expensive, and you probably want it to pay for everything that goes wrong in your home. Unfortunately, insurance doesn't work that way. Standard policies will either list the types of losses they pay for, or cover everything subject to the policy's exclusions. Either way, your policy should describe the circumstances under which it pays for damage to your furnace.
Cause of Loss
As with all items in your home, your insurance will only pay to repair or replace damage if it occurred as a result of a covered cause of loss. Therefore, your insurer may replace your furnace in some cases but not in others. When you file a claim, an adjuster will come to inspect the furnace to either determine how it became damaged or verify your story about the damage. Based on this inspection, he will decide whether to cover the loss.
Most homeowners insurance policies exclude losses that occur as a result of normal wear and tear. For example, roofs wear out over time, and the insurance company won't pay to replace them when they become worn out. Similarly, furnaces have a life expectancy. If your furnace needs routine replacement, or if it failed because of improper maintenance like failing to replace the filters, your claim will likely be denied.
If you have a basic- or broad-form homeowners insurance policy, you only have coverage for the specific causes of loss that are listed in the policy. Therefore, if your furnace is condemned, the inspector should tell you the reason it is condemned and the most likely cause of loss. For example, if your basement recently flooded, the furnace may be faulty because of the flood damage. In this case, check your policy to see if flooding is covered. Standard homeowners insurance excludes flooding. Flood insurance is sold by the United States federal government.
All-peril, or special-form, policies cover all forms of loss except those that are specifically excluded by the policy. Therefore, you must check the exclusions section to see if the cause of loss for which your furnace is condemned is listed there. If it is not listed, your insurer will likely cover the claim. For example, if you recently had a fire that damaged the furnace, you would look for fire in the exclusions section. All homeowners insurance protects against fire, so you should have a valid claim in this circumstance.
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