Own a home? Then there’s a good chance you have homeowners insurance. Approximately 95% of homeowners are covered; most lenders require homeowners insurance as a way to protect their interest in the property. Even if you’ve paid off your home, keeping it insured is still a smart move; it generally covers structural damage, loss from theft, and shelters you against costly liability lawsuits if someone is injured on your property.
And, as thousands of Californians learn during fire season each year, homeowners insurance can cover the devastating loss of your home and property in the event of a fire.
But just because you need homeowners insurance doesn’t mean it’s always easy to come by or keep. In fact, there are many reasons why your insurer could cancel or fail to renew your current policy. (What’s the difference? A cancellation is when your insurer terminates your policy prior to the end of your policy term, and a non-renewal is when your insurer drops you at the end of your policy period.)
Here are five leading factors to consider that may cause cancellation or non-renewal of coverage.
1. Failure to Make Payments on Time
Insurance companies generally are flexible about providing a 30-day grace period during which you can catch up on a late payment. When you pay within this time, they probably also will cover claims occurring during the grace period.
However, don't let late payment become a habit. If there is anything that makes your insurer feel edgy about covering you -- such as locating in a risky location (more below) or consistently making late payments -- the company may decide to cancel your policy for good.
Failing to make your payment or comply with the terms of your policy is the #1 way you could find yourself cancelled before the end of your policy term.
2. Filing Excessive Claims
Can you get cancelled for filing too many claims? It’s not likely. However, your insurer may choose to not renew your policy if you appear to be a high-risk client, and your claims history can definitely paint that picture.
If you’ve had a really unlucky year, don’t panic. If someone broke into your home and stole your expensive electronics and then your roof caved in a month later due to a heavy snowstorm, it doesn’t mean you’ll automatically lose your coverage. Just be aware that the less claims you file, the lower the risk and more attractive you become to insurers. And the more claims you file, the higher the risk - and more unattractive you become - to insurance underwriters, anyways.
Did you know? Regarding number of claims, you need to be aware that bundling auto and homeowners insurance together presents some risk. If you make multiple claims for damages to your car, this may affect your home policy. The insurer may increase your rates or fail to renew the combined policy.
3. Living in a Risky Location
Homes in areas prone to natural disasters may be insurable but insurers may apply major limitations. This is particularly true where wildfires, earthquakes, flooding, hail, hurricanes and tornadoes are common.
Insurers will look at the loss history of the area where your home is located to determine if it’s high-risk or not. If your home is in an area that is often hit by wildfires, they may designate you as high-risk which could make it harder, or more costly, to get coverage.
Tip for fire-prone areas: Before buying a home in a fire prone area, consider how distant the property is from access to a fire hydrant or fire station. More than five miles may be a deal breaker. If your home is in a high-risk area, consider taking additional precautions to make the home itself more impervious to fire; it could help you keep your coverage and current rates.
4. Poor Property Maintenance
Allowing hazards to accumulate through poor property maintenance may result in non-renewal following a renewal inspection. For example, one thing an insurance inspector will consider is the age of your home's roof, which is typically expected to last only up to 30 years.
Hazards, such as broken windows and trees badly in need of trimming, may also make an insurance company reluctant to renew a policy.
It may also be difficult to convince an insurer to cover a home you want to purchase if it has major damage.
5. Ownership of Certain Pets
Homeowners insurance generally doesn't protect your property against damage from your pets. Instead, it covers you if your pet damages another person's property or, perhaps, bites someone.
The kind of pets you have may increase your insurance rate or make your home uninsurable. It's also possible that an insurer will offer you standard homeowners coverage for everything except your pets if they are considered dangerous. Insurers are concerned about the possibility of liability claims related to bites and attacks by certain breeds of dogs which could beconsidered dangerous, or exotic pets including reptiles and primates.
If you gain homeowners coverage that excludes your pet, you can seek separate pet insurance for protection against liability claims.
6. Age and Condition of Non-Traditional Homes
Dreaming of a small home? The tiny house craze is all the rage right now. You can even download plans to transform a shipping container into a tiny home online and start building. But beware of the insurance difficulties that can come along with non-traditional homes. For example, is your tiny home classified as a house, or will insurers consider it a RV?
Other non-traditional homes, such as modular homes and trailer homes, come with their own insurance challenges. Whereas trailer homes are built in factories and generally have wheels, modular homes are comprised of pre-built, wood-framed sections that are assembled at homesites and usually rest on foundations. Insurers often set short age limits, ranging from 3 to 20 years, for insurability of these structures.
Protecting High-risk Homes in CA: the Wildfire Survival Guide Infographic
Find out how to protect your home and belongings against the threat of wildfire.
7. Poor Credit
Expect a credit check before approval for homeowners insurance. Sad to say, but if your credit slips for some reason, an insurer may consider you a poor risk. This can result in a higher price for coverage or no insurance at all.
Insurers use certain aspects of your credit score to help determine how risky it is to cover you. Your payment history, existing debt, history of bankruptcy, or accounts in collection can all paint a picture of you as a high insurance risk. And the higher the risk, the higher your premiums.
Add in more risk factors, such as living in an area that’s recently become more prone to fires, or a home that’s poorly maintained, and you could find yourself in a perfect position to have your policy cancelled or non-renewed.
If You Lose Coverage
A notification period of about 45 days is typical before cancellation of a homeowners policy. Actions to take if you lose coverage depend on what caused the cancellation. For example, if your insurer pulled coverage due a maintenance issue, fixing the problem during the notification period may make your policy eligible for reinstatement.
Remember that if reinstatement isn't possible, you may be able to qualify for high-risk homeowners insurance. Although it costs more than a standard policy, going without insurance can end up being far more expensive.