6 Reasons Homeowners Insurance Won't Renew
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Every year, thousands of Americans receive surprise a cancellation notice from their home insurance company. The carrier notifies them that they won't renew their homeowners insurance policy once their coverage expires.
Insurers don't renew these policies for a variety of reasons. Some may choose to not sell a household home insurance because they own a dangerous dog breed. Others decline or drop home insurance policyholders who own homes with ongoing maintenance issues.
Here are six reasons why insurers decide not to renew homeowners insurance policies. Plus, we share tips that will prevent it from happening to you.
What Is Homeowners Insurance and What Does It Cover?
Homeowners insurance has beneficial coverage that can offer financial protection for your personal belongings and home. These policies replace your things when they are damaged by fire, theft or other hazards.
This insurance can also cover costs when you are liable for damages against a third party. It will pay for accidental damages you make to another person's property or if a visitor suffers injuries on your property. The Insurance Information Institute says that standard homeowner's policies cover several perils, which vary based on a person's geographical region or state. These are the following hazards a home insurance policy will typically cover:
- Fire/smoke damage
- Damage caused by heavy snow
- Falling objects
- Damage from an aircraft
- Damages to a motor vehicle
Standard homeowner insurance policies don't cover floods, earthquakes, sewer backups or damage that occurs because of a lack of maintenance. You can get separate policies to obtain this coverage. You may be able to add water backup coverage to your existing homeowner insurance policy to help cover sewer backups.
Homeowner Insurance Cancellation versus Non-renewal
A homeowners insurance cancellation and nonrenewal are not the same things. An insurance provider can't cancel your policy when it has been in force for 60 days or longer. They can only do so when the following two reasons occur:
You failed to pay your premiums.
You committed fraud or made a grave misrepresentation on your application.
Once you commit these acts, an insurance company can decide to cancel your insurance policy at any time because you've breached the terms of your contract with them. Another reason that a carrier may cancel a policy is due to a home's deterioration that increases the risk beyond what an insurer is willing to cover.
A home insurance cancellation can also occur when an insurance provider discovers that a policyholder's property is vacant. Most insurance providers require people to notify them when their place is unoccupied for more than 30 days since uninhabited homes generally have higher crime rates.
Additionally, their owners can't take action to handle crises when they occur. For instance, if a fire ignites on a vacant property, the homeowner can't call the fire department to stop the house from burning down.
Unfortunately, individuals who have their homeowners insurance policy canceled usually have trouble getting coverage in the following months. If you are in this position, contact your state's department of insurance.
They can provide you a list of risk carriers (also known as residual market carriers. These companies offer insurance to customers who can't get coverage from traditional providers. You can also get connected with a trustworthy homeowners insurance agent through SmartFinancial. Just enter your zip code on this page to find a carrier.
Non-renewals of Home Insurance Policies
Non-renewals differ from home insurance cancellations and occur for a variety of reasons. A non-renewal takes place when a carrier or policyholder decides not to renew the policy once it expires. The industry refers to this as a customer being "dropped" by an insurer. For instance, an insurer may decide that it no longer wants to assume the risks of covering your home after a recent property assessment.
A nonrenewal can only happen when the policy's term finishes. Additionally, policyholders can also decide not to renew their insurance when they switch from one carrier to another. Although regulations vary, most states require insurers to issue a notice when they cancel or decide not to renew a homeowners policy.
Insurance carriers must explain their decision in a written notice 30 to 90 days before it expires. It gives people time to contact their agents to learn if they can take any steps to keep their insurance. Policyholders can also contact their state's insurance bureau for more advice.
Non-renewals Occur at Your Insurer's Discretion
There are several reasons why your insurance company may not renew your policy, and the reason may be complicated. Insurers can drop customers because they changed how they operate their business.
Additionally, they may decide to lower the potential risks they want to assume in the future. Insurers rely on a process called underwriting to assess each homeowners' risk. Professional underwriters assess each policyholders' unique risk, the cost to insure them and any future claims they may incur.
These professionals also confer with the Comprehensive Loss Underwriting Exchange (CLUE) report to identify additional risks. Home insurance companies also use location (whether it's safe or susceptible to crime) and current credit scores to determine whether they'll renew a policy.
Generally, a person can expect their premiums to be higher if policyholders have a lower credit score, because the insurance company may assess that it is riskier to insure them.
Six Reasons Why Insurance Companies May Not Renew Your Policy
A policy may not renew for several reasons. For instance, an insurer could decide to discontinue insurance to a property that doesn't meet their underwriting guidelines. In this case, it wouldn't renew because of something the person did. Others may not renew a policy due to a policyholder's actions, such as committing fraud. Some decide not to renew a policy because they are a high-risk customer. Here are several other reasons that someone's homeowners insurance coverage may not renew:
1. Numerous Home Maintenance Issues
Homeowners insurance policies aren't meant to maintain or upkeep properties. An underwriter may decide not to renew a home policy if numerous maintenance issues place a home at a greater risk of damage-related claims. Let's say a person's home has an old, rusty plumbing system with clogged pipes. If the homeowner doesn't fix this issue, an underwriter may conclude that these problems can place this home at an elevated risk of bursting pipes, flooding and water loss claims.
Another homeowner may have multiple issues with a faulty electrical system that shorts, blows fuses and has sockets that get extremely hot. This situation may place the person at an increased risk of fire. If you have these issues, your insurance company may suggest updating your systems or requesting a policy change to adjust for these risks, rather than not renewing it.
In another common example, a person may have coverage on a second vacation home in an Oceanside location. The owners don't perform routine maintenance to upkeep their property, and it stays vacant for months. They don't maintain their roof, sewage system, or electrical system, and their house is falling into disrepair. An insurer can decide not to renew the policy after an inspection of the property. The person will need to shop for a new home insurance policy, especially if they're still paying a mortgage.
2. Low Credit Scores
Insurance companies use credit scores as a predictor of people who will likely file a claim within the next two years. They prefer people who are responsible with their money and believe that credit scores indicate whether someone has poor spending habits.
Unfortunately, people with lower credit generally file a higher number of home and auto insurance claims. They pay more in home and car insurance premiums than those with better ones. If someone's credit score has decreased, it doesn't mean the insurer won't renew their homeowners insurance policy.
Insurance companies will assess how much the person's credit score has lowered. The insurer will also consider any efforts the individual has taken to improve it. These actions may include fully paying off debts or making on-time payments.
3. Large or Expensive Claims Made on the Policy
It's unlikely that insurers will drop people who only submit a few claims. An insurance company may not renew someone's homeowners policy if the person submits large or frequent claims. The industry hasn't come to a consensus about how many it takes to trigger non-renewals. Underwriters generally determine what risks each policyholder presents.
A policyholder will likely experience rising premium rates if they file frequent claims, and it will become part of their permanent insurance record. Underwriters may choose not to renew a policy when they believe the person has the potential to file future claims that will cost the company. Additionally, companies want to protect themselves from paying out fraudulent settlements.
The FBI estimates that insurance fraud, excluding health insurance, costs companies more than $40 billion each year. Insurance fraud costs the average American family between $400 and $700 per year. Some individuals who submit bogus claims see them as an opportunity to make money.
These homeowners exaggerate the financial losses they have, and some damage the policyholder claims to have may not be legitimate. Insurance fraud can fluctuate based on economic conditions and other issues.
4. Numerous Third-Party Liability Claims
Frequent claims made against policyholders by third parties can also lead to the cancellation of a homeowner's policy. For instance, an insurance company may not renew a policy if someone has suffered numerous injuries on a property due to hazards. Other instances can include an aggressive pet that has bitten several individuals that have filed claims against the homeowner.
Some carriers may decide not to renew homeowners policies in areas that are prone to frequent natural disasters. These situations can include tornadoes, earthquakes, extreme winds, fires, and hail. If they decide to insure these customers, they will generally charge higher premium rates to these consumers.
For instance, areas prone to hurricanes in Texas, Florida, and Louisiana pay an average of $800 more than the national average. Wind and hail also account for a large amount of property damage claims in Tornado Alley.
6. Owning Dangerous Breeds of Dogs or Animals
Your insurance company may drop your coverage if you own a dangerous breed of dog that can cause severe bite-related injuries or deaths to yourself, your family members or other people.
Additionally, they may not renew your coverage if you own certain exotic animal breeds known to be aggressive, dangerous, or cause death. These include poisonous pets such as snakes, exotic animal breeds, and larger animals. Notify your insurance company if you own an animal who has the potential to become aggressive.
How to Avoid Non-Renewal on Homeowners Insurance Policies
Here are some tips people can take to prevent their homeowners insurance policies from getting canceled.
Consider getting an insurance policy with a higher deductible to save you money on your premium rates. It may deter you from filing smaller claims that can place you at a greater risk for nonrenewal and it'll lower your monthly premium.
Have professional contractors complete annual maintenance inspections and identify potential hazards at your home. These checks will help you fix problems that can cause damages, including fires, floods and other disasters. These maintenance checks can also fix property risks.
Find out about your home's claims history. If you buy an existing home, learn what claims were filed in recent years. For instance, previous flood claims may impact a property and put it at a higher risk of nonrenewal. You can use the Comprehensive Loss Underwriting Exchange database, created by ChoicePoint, Inc. in Georgia to look up claims. It includes 90 – 96 percent of all homeowner claims nationwide. You can order a report from www.choicetrust.com for a fee.
If you live in an area that's prone to bad weather, fires, or other perils, you can look into the Fair Access to Insurance Requirements (FAIR) plan. It will cover people that can help people who live in hazard-prone areas.
What Can You Do if An Insurer Drops or Cancels Your Coverage?
Non-renewals can happen at any time at an insurance company's discretion. Has your insurer dropped your coverage, or are you afraid that it could happen to you soon? There are several things you can do to prevent it from happening or occurring again when to take out another policy.
You can follow your insurance company's post-inspection recommendations. Most insurance companies will conduct a home inspection at the start of your policy to ensure you're receiving the right amount of coverage.
The insurance industry also wants to ensure they're not taking on an enormous amount of risks when they insure you. They will examine your electrical system, plumbing, roof, and other areas to ensure they're in good shape. If they recommend fixing an item, consider their advice, and work on those issues.
A Note on Cancelling Your Policy:
Home insurance cancellation is usually prorated. Contact your mortgage lender as soon as you are insured again. Otherwise, a cancellation notice may set off red flags.
Shop Around for Coverage
The insurance company doesn't have all the power when it comes to non-renewals. If you don't like your current insurance company you can shop around for a new policy. Compare homeowners coverage from several companies by using SmartFinancial's transparent insurance technology, to find a policy that best suits you.
Our tools allow shoppers to compare different coverages and rates from local insurance companies within their area. All you need to do is enter your zip code below to get started. You'll receive free quotes from local insurance companies within your area. If your insurer will not renew your policy or if you decide to cancel your policy, we're here to help.