Ensuring your home is adequately covered by insurance is a pivotal step for homeowners, offering a vital safety net in times of unforeseen events. Home insurance provides financial protection against a spectrum of risks, including natural disasters, theft, fire, and liability for accidents that may occur on your property.
However, it’s not just about getting coverage initially; maintaining active coverage is equally crucial. Insurance companies may cancel policies or decline applications for various reasons, including non-payment of premiums, changes in the property’s risk profile, or a history of frequent claims. Therefore, homeowners should be vigilant about keeping their policies in force.
Continue on to delve into the specific reasons insurers might cancel policies, how to prevent such cancellations, and what steps homeowners can take to ensure continuous and effective coverage.
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Application Denial vs. Policy Cancellation
Distinguishing between application denial and policy cancellation is crucial in understanding the dynamics of home insurance. Application denial occurs when an insurance company refuses coverage from the start, often due to underwriting issues, misrepresentation, or the property falling into an uninsurable category.
On the other hand, policy cancellation happens after initial approval, even with consistent premium payments, and can result from factors like non-payment, increased risk due to property changes, or a history of excessive claims.
Regardless, it’s important to keep your property continuously covered. Should a disaster occur with a canceled policy or a denied application, you will be fully responsible for repairing the damages yourself, likely hundreds of thousands of dollars at the very least.
Understanding Homeowners Insurance Cancellation
Homeowners insurance cancellation means the insurance company discontinues a consumer’s policy in the middle of the term. Once the policy lapses, the homeowner no longer has coverage.
State laws govern the cancellation of home insurance policies. In general, once a policy has been in effect for more than 60 days, insurers can only cancel the coverage if the homeowner has breached the contract in some way, such as by committing fraud or not paying premiums.
Non-renewal is another way a consumer’s policy can be discontinued. It happens when an insurer decides not to renew your policy when it expires.
Why Insurance Companies May Cancel Your Policy
Insurance companies can only cancel policies for specific reasons, which vary depending on the policy terms and state laws. Here’s a look at some common homeowners insurance cancellation reasons.
You Did Not Pay Your Premiums On Time
A home insurance premium is the amount consumers pay in exchange for coverage. Insurance companies use the premiums they collect from all their policyholders to compensate those who file claims.
Depending on the insurer and the policy, premiums might be due monthly, quarterly, or annually. People who pay late or miss a payment may see their coverage canceled, meaning their home is no longer protected.
What Can You Do?
Homeowners insurance typically has a grace period that allows homeowners to make payments after the due date without losing coverage. The length of the grace period varies by insurer and state.
Grace periods may apply after cancellation, as well. Homeowners may have a certain number of days to pay their outstanding premium balance and reinstate their coverage. Contact your insurer for details.
You Committed Fraud on Your Application
Insurance fraud occurs when someone knowingly gives false information on their application for financial gain, such as lying about details of the home to get a lower premium. Fraud costs insurers money and affects their ability to pay honest policyholder’s claims.
Sometimes, consumers withhold important information. For example, you might forget to mention that you have a swimming pool. Insurers may cancel coverage that was issued based on false information.
What Can You Do?
For homeowners who intentionally gave false information on their application, there’s not much to do. It’s unlikely the insurer will reinstate the policy, and finding a replacement policy may be difficult.
On the other hand, if it was a genuine mistake, the insurer may be willing to reinstate the policy. Contact your insurer promptly to correct the errors.
You Committed Fraud on a Claim
Insurance claims fraud occurs when a homeowner intentionally gives their insurer false or incomplete information to get more money. For example, a person might exaggerate the details of a real claim, such as inflating the value of damaged items.
Home insurance payouts are intended to reimburse you for the costs associated with covered disasters. Using the money for other purposes could be considered fraud. Contact your insurer to learn about the restrictions on how money is spent.
What Can You Do?
There’s not much homeowners can do to dispute a cancellation for claims fraud. In addition to having their home insurance canceled, they may face civil or criminal penalties, depending on the situation.
However, it may be possible to resolve genuine mistakes. Insurers reinstate policies at their discretion.
You Did Not Complete Mandatory Repairs or Upgrades
Insurance companies may require a home inspection before agreeing to renew a policy, especially if the home is older or in an area prone to disasters. Inspections look for problems that make the house riskier to insure, like a worn-out roof, leaky pipes, or outdated electrical wiring.
After a failed inspection, homeowners may receive some time to make necessary repairs. If the repairs are not completed as agreed, the insurer may cancel the policy.
What Can You Do?
If possible, complete the required repairs and provide proof to the insurance company. Insurers may be willing to reinstate a canceled policy once the inspection issues are resolved. Another option is to look for coverage elsewhere. Each company has different rules, so another insurer may not consider the repairs necessary.
Your Home Has Stood Uninhabited Long Enough to Be Considered Vacant or Abandoned
A home is considered vacant if it’s empty and unoccupied. Standard homeowners insurance policies have rules about how long a vacant home remains eligible for coverage. For example, coverage could be canceled after around 30 to 60 days of vacancy. Vacant homes are riskier to insure than occupied homes. Research shows that when a home becomes vacant, violent crime in the immediate area increases around 19%.
What Can You Do?
If you plan to move back into the home, contact your insurer to find out if it’s possible to reinstate the homeowners insurance policy. If not, look for coverage elsewhere. For a home that will remain empty, vacant home insurance may be an option. It covers the structure of an unoccupied home and sometimes other structures on the property.
Why Insurance Companies May Not Renew Your Policy
Insurance companies may choose not to renew a policy when it expires for various reasons. Whatever the reason, insurers are required to provide advance written notice to policyholders. The length of the notice period varies by state.
You Filed Too Many Claims
Homeowners insurance is designed to shield consumers from the high costs of sudden, unexpected disasters like house fires. It’s not intended to cover multiple small claims; homeowners who file frequent claims may face non-renewal.
As a general rule, it’s not worth filing a home insurance claim for damages that can be fixed for about the same or less as the deductible. For example, you might consider handling issues like superficial weather damage on your own.
What Can You Do?
Insurance companies see policyholders who file too many claims as risky to insure. There’s not much a homeowner can do if their policy gets non-renewed for excessive claims other than find a new policy.
However, there are steps to take going forward. To appear less risky to insurers, consider paying for minor repairs out of pocket rather than filing a claim. Additionally, consider raising your deductible to discourage yourself from filing frequent small claims.
You And/or Your Home Are Now Considered Too Risky To Insure
Insurance companies look at each homeowner’s risk profile when deciding whether or not to renew a policy. In simple terms, a risk profile estimates the cost of insuring a home over a certain period based on historical data, like the type and frequency of disasters and how much the claims cost.
Many factors affect a homeowner’s risk profile. For example, insurers may find a homeowner too risky to insure if their home is in disrepair and unlikely to withstand disasters or if they own a dog breed that is associated with high-cost dog bite liability claims.
What Can You Do?
Contact the insurance company to find out if you can do anything to reduce your risk profile and get the policy reinstated. For example, if the home insurance non-renewal is due to a dangerous pet, the insurer may suggest rehoming the animal.
Shopping around is also an option. Each insurance company uses its own criteria to determine when a home or homeowner is too risky to insure.
Your Insurer Has Decided To Stop Offering Coverage for Your Area
In some parts of the country, insurance companies are choosing to stop selling policies because the risk of doing business is too high. They see the claims as too frequent or too expensive, which is not the fault of any individual homeowner.
For example, some major insurance companies have recently withdrawn from the California market due to the risk of catastrophic wildfires. Insurers have also pulled out of some coastal areas in the Southeast due to the risk of hurricanes.
What Can You Do?
When an insurer decides to stop offering policies to all homeowners in a certain area, the only option for policyholders is to look for coverage elsewhere. Work with your insurance agent to find companies that are still offering policies in your area.
In some areas with very high risks, few insurers are willing to sell policies. Homeowners denied by several private companies may be eligible for last-resort coverage through their state.
What Should You Do After Your Policy Is Canceled?
After having your homeowners insurance canceled, it’s important to find out if the policy was canceled or non-renewed. The two situations are similar, but they can have different impacts on your ability to find new coverage.
When a home insurance policy is canceled, insurers provide advance written notice of cancellation. When a policy is not renewed, homeowners receive a non-renewal notice instead. In both cases, the letter should explain the reason for the decision.
Start looking for a replacement policy as soon as possible to avoid a gap in coverage. Having your homeowners insurance canceled can make getting approved for replacement insurance harder, and when you find coverage, it may cost more.
Non-renewal does not necessarily have the same impact since some homeowners lose coverage at no fault of their own. However, if your policy was non-renewed for something you did, like filing too many claims, expect to pay higher premiums.
Understanding Homeowners Insurance Application Denial
A homeowners insurance application denial occurs when an insurer refuses to sell a new homeowners insurance policy, leaving the applicant without coverage. People who’ve had their home insurance canceled may find it harder to get an application for replacement coverage approved.
Insurance companies will notify consumers if their application is denied. Sometimes, the denial happens as early as the quote process if the consumer discloses issues that make the home uninsurable. In other cases, the denial comes a few days to a few weeks after submitting the full application.
What Insurers Look At In Your Application
Insurers use the information in your application to estimate the risk of insuring your home. Based on the information you provide, they decide how likely it is that you’ll file a claim.
The specific questions insurers ask will vary depending on their risk tolerance. However, some common questions homeowners can expect to answer include:
- Where is the property located? Insurers consider the risk of natural disasters, crime, and other issues in the area.
- What year was the home built? Newer homes tend to come with less risk than older homes.
- Have you ever had insurance denied or canceled? Past application denials or policy cancellations negatively impact your risk profile.
- Have there been any insurance claims on the property? Homes with severe or frequent, small claims are seen as higher risk to insure.
Why Insurance Companies May Deny Your Application
Insurance companies decline applications when they’re not willing to insure a particular homeowner or home. Here’s a look at some of the more common reasons behind that decision.
Your Previous Home Insurance Policy Was Canceled Due to Non-Payment, Excessive Claims, And/or Fraud
Insurance companies can check an applicant’s history of claims and policy cancellations during the application process. Seeing that an applicant had their previous homeowners insurance policy canceled is a red flag.
Insurers deny applications after a policy cancellation because they use past behavior to predict future behavior. In simpler terms, if you committed fraud or filed excessive claims in the past, they worry you will do it again.
What Can You Do?
Homeowners who had issues with their previous insurance policy may have trouble finding a replacement policy. Some insurance companies are more willing than others to cover high-risk homeowners, so shopping around may be an option. For homeowners who cannot get coverage in the regular market, states offer last-resort plans.
You Are Considered Too Risky to Insure
After having their policies non-renewed due to unacceptable risks, homeowners may face the same problem when applying for replacement coverage. New insurance companies may agree with the original insurer that the property is too risky to cover.
For example, if a homeowner’s policy is not renewed because they adopted a potentially dangerous dog breed, other insurers may also decline coverage because of the animal.
What Can You Do?
Sometimes, insurers agree to offer coverage if the homeowner takes steps to make the home less risky. For example, it may be possible to get coverage after making certain safety upgrades around the home.
Each insurer has a different risk tolerance, so continuing to shop around is also an option. Consider working with an insurance agent to find an insurer that is willing to insure your property as is.
Your Credit Score Is Low
A credit score is a number that represents how well a person manages their finances. Generally, credit scores range from 300 to 850, and a score of 670 or higher is considered good.
Many states allow insurers to consider credit scores when making application decisions. People with lower credit scores tend to file more claims, so insurers see them as a higher risk to insure.
What Can You Do?
Take steps to improve your credit. Check your credit history for accuracy, and fix any errors that exist. Make payments on time and catch up on past-due accounts. Pay down the balances on revolving accounts, like your credit cards.
Improving your credit does not happen overnight. In the meantime, work with an agent to find a company that insures people with poor credit.
Your Options For Home Insurance If Your Applications Are Denied After Policy Cancellation
After having your homeowners insurance canceled, it can be harder to get replacement coverage. However, there are still two options:
- Continue shopping around. Each insurance company has different guidelines for the types of homes and homeowners it’s willing to cover. Having your application denied by one insurer does not mean getting coverage elsewhere is impossible. Try working with a trusted agent to find an insurer who is willing to insure your home.
- Look into your state’s FAIR Plan. Fair Access to Insurance Requirements (FAIR) plans are a state-run alternative for homeowners who cannot get coverage in the regular market. As a last-resort option for very high-risk homes, FAIR plans offer more limited coverage at a higher cost than traditional home insurance.
Putting It All Together
Homeowners insurance offers crucial financial protection for homeowners, so having a policy canceled or application denied can be frustrating. Fortunately, there are many options for homeowners who find themselves in this situation.
After having your homeowners insurance canceled, contact the company to find out if it can be reinstated. If not, work with a trusted agent to find alternative coverage in the regular market or from a FAIR plan.