An unexpected letter from the insurance company is something that many homeowners dread. Far scarier is discovering that the company will not renew your policy, or even worse–is canceling it midterm.
This may sound shocking, especially for newer homeowners, but home insurance policies can and do get canceled by carriers. It’s something you want to avoid at all costs because not having coverage could negatively impact your ability to get coverage in the future and your relationship with your mortgage lender.
While home insurance cancellation is scary, it’s not unmanageable. We’ll give you the ins and outs of this situation and what you can do if you find yourself in it.
What does cancellation even mean?
First, we should differentiate between two similar but different situations that fall under the umbrella of cancellation: policy non-renewal and policy cancellation.
- Non-renewal means that the company will not offer you a new policy when your current one ends, but they will insure you to the end of your current policy period.
- Cancellation means that your policy will end early. Usually within a specified period of time (usually 30-45 days) from the date of notification.
We’ll get into more detailed reasons for cancellation later, but non-renewal is usually related to claims or structural issues with the home, while mid-term cancellation is often the result of a homeowner misrepresenting the truth.
What are my rights?
Insurance companies are not required to renew your home insurance policy, but they are required to give you sufficient notice when they decide to end the relationship. The amount of time varies from state to state but is around 1-2 months.
In the case of a non-renewal notice, the insurance company may also provide guidance as to how you can bring your home back within their risk standards. If you are willing to make a good faith effort to comply with the guidance, you may be able to negotiate a timeline with the carrier that extends beyond the non-renewal deadline.
Reasons why home insurance policies get canceled
You have too many claims
Filing multiple claims within a short period of time is a red flag for insurers. Insurance companies see individuals who file multiple claims as risky and damaging to their bottom line. Insurance companies want to limit paid claims to rare and unpredictable occurrences. If you’re predictably filing claims, then you’re too much of a risk.
You live in a risky location
This can seem strange if you’ve had the same carrier and have lived in the same place for a long time. Insurers use predictive models to forecast the likelihood of occurrences like severe weather events and how they change over time. Natural conditions like changes in climate may make your home undesirable to insure.
Your roof is too old
Roofs that are approaching or past their expected lifespan are a liability. They don’t protect the home sufficiently and can leak — resulting in more damage to the interior of your home. Since a claim is basically inevitable, an insurance carrier may choose to drop you before it happens.
The house failed a safety inspection
If your home has significant structural issues, the insurance company may be reluctant to cover any claims. Poor workmanship or code violations can cause minor issues to snowball into expensive problems. Common problems that may be noted during an inspection include outdated electrical and plumbing systems, or just general disrepair.
You own exotic or dangerous pets
Your policy isn’t going to get canceled because of your house cat or Golden Retriever.
This reason is typically reserved for animals that pose a threat to their owners and the surrounding community. That’s because it may increase the likelihood that someone is injured on your property and sues you. The insurance company would be on the hook for that payout.
Animals in this category typically include exotic species and certain dog breeds that are considered dangerous and aggressive.
You stopped paying your premium
This is pretty self-explanatory, but your home insurance carrier will cancel your policy if you are not paying for it. In addition, if you have a history of making late payments, the insurer may not see you as a reliable customer. If the nonpayment is truly unintentional (e.g., not updating autopay information), you may be able to reinstate your policy by discussing this with your carrier.
You misrepresented your property or didn’t inform your insurance company of new hazards
Misrepresenting the condition of your home or making significant changes without informing your insurer (e.g., installing a pool), are policy violations. If an insurance company does not have all of the necessary information, they will not be able to provide you with a policy that actually fits your needs.
What can I do to keep my insurance?
Follow the insurer’s guidance
If your insurance company has provided you with instructions about how to bring your home back within its level of risk tolerance then, by all means, do it. Inform your insurance company of your plan to do the work as soon as possible before your official policy end date, so they can schedule another inspection of your property.
Prove that you are not risky
This strategy may be useful for policyholders who have filed too many claims or have a history of late payments. You can attempt to show that you are on more sound financial footing by presenting pay stubs and bank statements. You can also provide evidence of any safety improvements you have made on your own.
Explain the circumstances of claims
It may benefit you to have a detailed discussion about the circumstances surrounding claims that were made during a short period of time. An insurer may be more willing to keep you on as a customer if you can prove that the claims were unrelated and truly couldn’t be prevented.
Dispute the inspection
This is probably the least convincing thing you can present to an insurance company, but if you have the resources, you may want to try. You can hire an independent, licensed expert inspector or tradesman to come look at your property and develop a report that disputes your insurance company’s recommendations. Keep in mind, however, that while everything that the inspector says may be accurate, it also may not be relevant to insurance and risk. For example, your hired electrician may say that your old wiring may be okay for a few more years, but that doesn’t minimize the risk that the insurer sees right now.
I have to change carriers — what do I do?
Even if you’ve done all you can to try to stay with your current home insurance provider, there is still a chance that they will cancel your policy. Fortunately, that is not the end of home insurance for you. You have some options.
- Work with an agent – Every insurance company is different. What may be a red flag for one, may not be an issue for another. An agent who works with multiple carriers may be able to direct you to the best provider for your situation. Just remember to be upfront about your insurance history.
- Look into FAIR plans – Most states offer a high-risk insurance plan called Fair Access to Insurance Requirements (FAIR). They are for homeowners who do not qualify for insurance on the private market. These plans cover structural damage to the home, but often do not cover personal property damage. Keep in mind that you are not automatically entitled to a FAIR plan. It’s still insurance, and your state will likely require you to bring your home up to a certain standard before providing coverage.
- Lender-placed insurance – This is an option of last resort. If your insurance company decides to cancel your policy, it will update your mortgage lender with this information. Having insurance is often a requirement of a mortgage agreement, so if you don’t find a carrier, your lender will find one for you or become the insurer. Lender insurance is very expensive — multiple times the cost of a typical policy — and covers much less, usually just structural damage. It will also significantly raise your monthly mortgage payment.
- Try AgileRates – Fill out the form and AgileRates will match you with an agent or carrier in your area who can work with your situation to give you a quote.
How can I prevent this from happening in the future?
Be more selective about filing claims
Try to avoid filing multiple small claims or ones that barely exceed your deductible. It will probably save you money (and grief) in the long run to just pay for these repairs out of pocket and not report them to your insurance company.
Do regular maintenance
If you keep your home in good condition, your home insurance company will have less reason to end your coverage. Hire your own inspectors to give you recommendations, and act on them. Gradual improvements are much easier than doing everything at once in an effort to save your insurance policy.
Consider bundling your homeowner’s insurance with your auto insurance policy. This shows the company that you are interested in having a long-term relationship with them. The company may also be less eager to cancel your entire policy if you happen to be a good customer within their auto business.
Don’t violate your policy and keep your insurance company in the loop
Insurance companies write your policy based on your presentation of your home and circumstances. If your situation changes, then you need to update your home insurer. What’s worse: having your premiums raise slightly because you installed a pool, or having your insurance canceled entirely because you chose not to update the insurance company with this information? Open communication with an insurance company goes a long way. Sources: Realtor.com | The Balance | State of MA-Insurance Division | NY Times | SF Gate | The Balance