Some homeowners have difficulty getting insurance through no fault of their own. Here's what you can do to get the coverage you need.
Homeowners insurance isn't required by law. But almost no mortgage lender will give a home loan to someone without one. Unfortunately, finding homeowners insurance is a struggle for some people.
There are several factors that can make you unable to get home insurance. These include your personal history, your home, and the area you live in. Just because one company won't cover you doesn't mean you can't find an insurer.
Fortunately, several home insurance companies offer high-risk policies. Homeowners can also qualify for FAIR (Fair Access to Insurance Requirements) if they live in areas prone to disasters or crime.
There are several different reasons why people are unable to get homeowners insurance. The most common reason is that you or your home have been designated as high-risk.
Insurance companies don't like selling high-risk policies. Why? For various reasons, you're more likely to file an expensive claim. In other words, insurers can lose money when insuring a high-risk person. These are the most common factors that make someone high-risk:
Homeowners can do a number of things to find coverage, such as:
Homeowners who have tried all of the above and still can't find insurance can check if their states offer 'FAIR Plans.' Some states also offer beach and windstorm plans. These are also known as insurance of last resort.
FAIR, short for Fair Access to Insurance Requirements, are insurance policies created for people who can't find coverage in the voluntary market. Some states require customers to prove they can't get home insurance before getting a FAIR policy.
In order to get insurance through FAIR, you need to apply through an outside insurer. You don’t apply directly with FAIR. Any licensed insurance agent is able to help a person get coverage through FAIR.
Homeowners should use FAIR plans after trying to get insurance elsewhere. They are usually more expensive and offer less coverage than other plans. According to Phil Benson, Executive Director at Oregon FAIR Plan Association, while these plans may offer limited protection, they do give enough coverage to meet the standards required to obtain a mortgage. According to the III, all FAIR plans cover fire, riot, windstorm, and vandalism. Beyond that, what a policy covers varies by state.
For example, the Oregon FAIR plan does not include liability coverage. Nor does it pay for damages from mold, theft, or water damage. But they do provide customers protection from fire, vandalism, and extended coverage. Extended coverage includes claims related to the following:
FAIR plans may be relatively expensive for the amount of coverage received, around $500 to $600 a year in Oregon. They do, however, provide people with home insurance so no one will have to go without coverage.
It is also usually more affordable for people than surplus lines insurance. But, not all states offer FAIR plans, in which case you may need to turn to other options.
If you do get home insurance from another source at a later time, you'll be able to cancel your FAIR policy.
By receiving coverage through a FAIR plan, you may have to take preventive measures on your house. This can include installing anti-theft devices or updating your plumbing system. People who do not take these steps to prevent damages to their home run the risk of losing their insurance through FAIR.
Not all states offer FAIR plans, but the majority do.
Homeowners living by the coast and other high-risk areas need extra protection for their property. This is why certain states offer additional programs like beach and windstorm policies.
Seven states offer beach and windstorm plans including:
If an insurance company designates you as high-risk, you're going to have to jump through a few hoops to get coverage. Here are companies that offer home insurance policies to high-risk people.
Once you buy a plan, your insurer generally only has 60 days to cancel the policy. Otherwise, there are only a few circumstances where they are allowed to drop you. This includes committing fraud to get coverage, not paying for your policy, or owning a house that suddenly is a much bigger risk to insure.
However, the insurer can refuse to renew the policy for any reason. Many insurers will not renew a plan if the homeowner has filed two or more claims in the past three years. Some insurers go so far as to look for two or more claims filed in the past five years. Whether or not an insurer renews varies based on company policy.
If you do end up losing your coverage, compare home insurance quotes from other companies immediately to maintain your coverage. Just because your old carrier cancelled doesn't mean no one else will cover your house.
"A lot of people think insurance companies are loyal. That's not true. There is no loyalty," Benson said. "A smart move for anybody is every other year or two…go and do a sample and say I'd like to get competitive quotes for auto insurance. One way to double check [your rate] every so often."
Paul Smolinsky, Underwriting Manager at the Pennsylvania FAIR Plan adds, "Buildings should be maintained in good repair. If non-renewed, the individual should seek alternatives or corrective action from the insurance company. If not satisfied, most states have an appeal procedure."
Here are a few tips to avoid losing your insurance coverage.
Not only will your rate go up on your policy, but the big risk of potentially losing coverage usually isn't worth filing the claim. Of course, if your home is damaged substantially, you'll want to let your insurer know.
Having trouble deciding whether or not to file a claim? A good rule of thumb is if the damages are less than your deductible, don't bother filing a claim. If the damages are only slightly more than the deductible, is it also best to just pay out of pocket.
Thankfully, insurers may wipe the slate clean after three years.
"Insurance companies traditionally use a three-year period," Benson said. "Anything bad that happened before, they pretend hadn't happened and you get a clean start again."
Some claims can hurt your rates and renewal chances more than others. Prepare yourself if your claim history includes the following:
A: Credit history is a factor considered by some insurance companies. They treat it as a barometer of how likely it is that a person will file a claim.
To counteract a less-than-great credit score, focus on improving your application in other areas. Install preventive features like deadbolt locks and smoke alarms. Some insurers give discounts to customers who take these steps. Other discounts include deals for non-smokers and for bundling policies, like buying both your home and car insurance from the same company.
A: When a company doesn't renew your policy, you have a few options. First, find out why your company is dropping you. This will help you determine if there is anything you can do to improve your home, like updating security features or old wiring.
You should also shop around and compare homeowners quotes from other insurers. Companies each have their own way of evaluating risk, and weigh factors differently. If one insurer doesn't want to cover your house because of, say, mold, another insurance company may not see that as a big problem.
If you can't find coverage in the private market, see if your state offers insurance through a FAIR plan.
How do you qualify for a FAIR plan? If you can't find outside insurance, and you take preventative measures to protect their home from damages, you qualify. These plans are more expensive and offer less coverage. But they provide insurance for people who otherwise can't get coverage.
If your state doesn't have a FAIR plan, Smolinksy suggests talking to your state insurance department for help.
A: In short, no. The FAIR plan offers limited coverage for a higher rate. In fact, some states like Oregon will not allow you to get a policy through a FAIR plan unless you have tried to find coverage from two or more insurance companies.
A: According to Benson, homeowners are frequently rejected for insurance because of poor maintenance.
"The house has two refrigerators in the front yard, trees and moss on the roof, and hasn't had a paint job for years. Sometimes there's a situation where there's no foundation—the house is just on stilts with no concrete foundation," said Benson. "Someone hasn't spent money or time to make it look pretty and has let it deteriorate."
There are other reasons why people are denied insurance. These include filling too many claims, or having bad credit.
Then again, insurers sometimes deny people coverage through no fault of their own. For instance, a person with a well-maintained, new home may have trouble finding a policy because the it's in an area where wildfires are highly likely.
A: Mortgage lenders always require a homeowners insurance policy. They want their investment to be protected.
This can cause problems if you're having trouble finding a home insurance plan. If you're in this position, your mortgage lender will force-place an insurance policy. Force-placed insurance policies are also common in flood zones.
Normally, force-placed plans only cover the land and structure. They won't cover your liability or your belongings. On top of that, these plans are usually more expensive than a normal insurance policy.
If your mortgage lender force-places a policy on your home, do everything you can to purchase your own policy. It'll save you money and provide additional coverage. Of course, if you're high-risk, you may have no other options.
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