A comprehensive home insurance policy is most likely a good investment for any homeowner, regardless of where you live, due to the financial protection it provides. Data shows that roughly six percent of homes in the U.S. had a homeowners insurance claim in 2020.
Almost 98% of those incidents were property damage claims, including theft. But while home insurance can be incredibly beneficial to your wallet, some people struggle to get it or get dropped from their policy.
This can happen if you live in an area with a high risk of severe weather, like hurricanes or floods, or have filed multiple insurance claims in recent years. If you’re dealing with canceled insurance, Bankrate’s insurance editorial team helps you explore your options.
Reasons a home insurance company will cancel or not renew your policy
“A home insurance company may cancel a policy for various reasons,” says David Stuart, founder and president of Southwestern Insurance Group. Here are some of the biggest reasons why your policy might be canceled:
- Non-payment: Your insurance policy is a legal contract between you and your insurer. In exchange for a premium, your insurer agrees to compensate you for covered losses. If you stop paying your premium, your insurance company will eventually cancel your home insurance policy for non-payment.
- Frequent claims: Filing home insurance claims often causes your home insurance premium to increase. In some cases, if you’ve filed multiple claims within the past few years, it’s possible that your home insurance company might cancel your policy altogether. Homeowners with a lengthy claim record are generally viewed as riskier to insure.
- Insurance fraud: Insurance fraud is illegal, and it has serious consequences. So, if you intentionally set your house on fire and try to collect an insurance payment, your insurance policy will most likely get canceled, along with other potential fallout.
- Underwriting issues: Certain underwriting issues can also lead to dropped insurance. For instance, if an adjuster visits your home after a claim and notices that your home does not meet the insurer’s underwriting guidelines, it’s possible that your policy will get canceled.
“Home insurance providers may refuse to renew a policy for similar reasons as to why they would cancel a policy,” adds Stuart. In addition to the reasons listed above, it’s also common for home insurance companies to refuse renewal if they are withdrawing business from your area.
“In many cases, home insurance companies will set a policy to be non-renewed instead of canceling it in the middle of the policy period,” says Stuart. Then, you have until the end of the policy period to get a new insurance policy.
What should you do if your homeowners’ coverage is dropped
It can be stressful to find out that your home insurance policy is getting canceled, but there are a few things you can do to address the situation.
“If you receive notice that your policy is being canceled, the first thing you should do is contact your agent regarding the notice,” says Ethan Warren, managing director at Goosehead Insurance.
Ask the agent about the reason for the cancellation and see if there is anything you can do to fix it. For example, if your policy is being canceled due to non-payment, see if you can set up a payment plan with your insurer and catch up on what you owe.
If you can’t fix the situation and your policy is scheduled to be canceled, here’s what you should do next:
- Shop for a new policy: Start shopping for a new home insurance policy as soon as possible. Get quotes from a few different insurers to find the most affordable policy for your situation.
- Reduce your risk: If your policy was canceled due to risk-related issues, see if you can address them. For instance, if your home is in a high-risk hurricane area, consider installing stormproof windows and hurricane shutters, or replace your current roof with a metal one.
- Look into a non-standard policy: Some homeowners have a harder time getting approved for coverage due to factors that are out of their control. In this case, you might want to consider non-standard policies, which often have more flexible eligibility requirements.
Home insurance cancellation laws by state
“In most states, insurance companies must provide notice before canceling a policy, and policyholders have the right to appeal a cancellation if they believe it was done in error,” says Stuart.
However, every state has unique laws around home insurance cancellation and nonrenewal. For example, in California, insurance companies are required to give policyholders a notice of cancellation at least 45 days before the policy’s termination date.
If you have questions about the home insurance cancelation laws in your state, you can notify your state’s department of insurance.
What is a FAIR plan?
If you’re struggling to get approved for a traditional home insurance policy, you might consider a Fair Access to Insurance Requirements (FAIR) plan.
“FAIR plan policies are essentially a last-ditch effort for homeowners who may live in a high-risk area or have a poor insurance background,” says Warren. FAIR plans make it easier for some homeowners to get coverage if they have been repeatedly denied.
FAIR plans are state-managed programs, which are jointly funded by taxpayers and private insurance providers. Unlike a standard home insurance policy, where you receive coverage from one company, FAIR plans are shared market plans, where you’re insured by several companies.
With home insurance through a FAIR plan, multiple insurance companies are providing your coverage. In that regard, it limits the risk that a single insurance company has to take on. If you have a claim, the companies that insure you each pay for some of the loss.
The type and amount of coverage you can get from a FAIR plan depends on your state. However, these policies typically offer less protection than regular home insurance policies and are often more expensive.
According to the Insurance Information Institute (Triple-I), all FAIR plans include coverage for fires, vandalism, riots and windstorms. Some FAIR plans include personal liability insurance, but it depends on the state.
Stuart adds, “Not all states have a FAIR plan, so you should check with your state’s department of insurance to see if this is an option for you.” Currently, more than 30 states and Washington D.C. offer FAIR plans to qualifying homeowners.
When should I look into getting a FAIR plan?
Once you receive notice that your home insurance policy is getting canceled, you should start shopping for new policies. At that point, if you get denied by two or more home insurance companies, it’s probably a good idea to look into a FAIR plan. Most states require proof of denied coverage by at least two insurers before you can apply for a FAIR plan.
If your home insurance policy gets canceled, it’s important to act quickly, whether you get another standard home insurance policy or a FAIR plan. Once your policy expires, you will have no home insurance coverage.
If you let your policy lapse, it could be more difficult to get another home insurance policy in the future, and the rates could be more expensive. Additionally, if anything happens to your home or property during the lapse, you will be responsible for the damages out of pocket. You can avoid a lapse in coverage by purchasing a new home insurance policy that starts a day or two before your old policy terminates.
The bottom line
Most homeowners are able to qualify for a standard home insurance policy, but others might struggle to get coverage. If your home insurance policy gets canceled, or if you get denied coverage, there are a few things you can do.
First, figure out why the policy was canceled and see if there’s anything you can do about it. If not, start applying for new policies as soon as possible. If you’re getting turned down by multiple insurance companies, find out if your state has a FAIR plan, which usually has more flexible underwriting requirements.
This article originally appeared here and was republished with permission.