Navigating Homeowners Insurance With Claims History
Research suggests 12% of homeowners in the United States don’t have homeowners insurance.[1] Some can’t get homeowners insurance because of claims.
Some people submit false claims and get caught. That’s a very easy way to keep future companies from offering coverage for your home.
Some people live in crumbling homes that need repairs. They can’t get insurance until they fix the damage and lower their risks.
Others can’t get homeowners insurance because of claims they can’t control. They live in places like California and Florida that are plagued by tragedies like fires and flooding. Insurance companies are leaving these states, and it’s very difficult for residents to get the help they need.[2]
Here’s what you need to understand about the landscape of homeowners insurance and what you can do next.
What to Do When Your Policy Is Denied
You applied for homeowners insurance, and the company rejected your proposal. It’s a discouraging time, but you have plenty of options. Slow down, take a deep breath, and plan for the future. The following steps may help:
Understand Your Insurance Denial
You shouldn’t be surprised by an insurance claim denial. In Oregon, for example, insurance companies are required to give 30-day notice before rejecting a homeowners insurance renewal.[3] Use this time for research.
You should get a letter that contains information about why your plan was rejected. The following issues may be to blame:[5]
- Typical weather emergencies in your area
- High crime rates around your home
- Old electrical or plumbing systems that can cause damage
If you can’t get homeowners insurance because of claims, you’ll know it. Every time an insurance company starts, finishes, or denies a claim, they report that information to a company called LexisNexis. That organization compiles a CLUE report.[4] Your company may look over the CLUE data and decide your home is too risky.
Strategies for Overcoming a Denial
If your claims history is to blame for the rejection, request a copy of your CLUE report and contest any data that seems inaccurate. This is a smart move, as it could ensure that the next insurance company doesn’t reject you for the same (false) reason.
If your claims history isn’t to blame, but weather is a problem, contact your state insurance department and ask about available consumer assistance programs and resources.[8] You might be referred to one of the following types of programs:
- FAIR plans:[5] Fair Access to Insurance Requirements (FAIR) plans are designed to make insurance available to homeowners living in areas with high risks that can’t be controlled (like flooding and fires). They’re more expensive than standard plans, but they offer less coverage too.
- Beach/Windstorm Plans:[5] Seven states offer beach/windstorm plans that can supplement or replace FAIR plans. They’re also very expensive but offer less coverage.
- Surplus lines:[6] Some people buy surplus lines when they can’t get standard insurance. Traditional agents can sell these products, but they come at a higher price point.
While these programs can be helpful for people who can’t get any other type of insurance, you must apply for them and meet specific requirements. While every plan is different, typical requirements include the following:
- Prior denials: You must prove that you can’t get insurance through the standard marketplace.
- Good financial health: You must verify that your property isn’t subject to taxes, penalties, or liens.
- Good legal status: Your property can’t violate building, housing, air pollution, or sanitation laws.
Know that these plans aren’t ideal. As one executive director of a FAIR plan puts it, his products are the last market of choice for consumers.[9] They only get this coverage when nothing else is available.
Proactive Measures That Could Prevent Denials
No one wants to deal with a lack of homeowners insurance coverage. While you can’t guarantee that every company will provide you with the plan you want, a few steps could help to reduce your risk of rejection.
Read through your denial letter very carefully. You may spot issues you can fix. For example, if you’ve been denied due to old electrical systems, that repair could be smart. If you live in a high-fire area, replacing your roof and siding with fire-resistant products could be wise.
Look over your old insurance bills and compare them to the amount you’re paying in an alternate plan. If the amount you’ll save is more than or equal to the cost of the repair, it could be a good investment.
If you can’t get homeowners insurance due to claims, make better choices in the future. Don’t file a claim for tiny problems you can solve or fix independently. Change your thinking to using your insurance program as crisis coverage only. As companies see your reliance reduced, they may be more willing to take a chance on you.
Explore Alternate Insurance Programs
Your best homeowners insurance plans come from a standard marketplace. These are products that come with intense protections and a relatively small cost. Using a different type of insurance can be a shock to your system.
One family that switched from standard insurance to a FAIR plan once paid $1,800 in premiums and now pays more than $6,000.[10] This family is considering dropping insurance altogether due to the high cost.
Some people apply for alternate programs, as they can’t get standard coverage. Every program is slightly different, as are the required documents and plans. Follow each step carefully, and don’t be afraid to ask questions as they come up.
Other people are in force-placed insurance.[12] Your creditor or lender will find the plan and enroll you in it, even if you don’t want this product. You must pay for the plan, and the coverage is very expensive. Typically, the program only covers the structure and not any of your belongings.
While you’re enrolled in a force-placed plan, keep looking for insurance through the standard marketplace. If you can find one, gather up all of the relevant documents and give them to your servicer. Ask them to cancel the forced coverage as soon as possible.[12]
Help for Homeowners in High-Risk Areas
In a 2014 survey, 63% of Americans planned to change their homes for added severe weather protection.[13] Since that time, more people may have come to the same conclusion.
Every area is different. The challenges homeowners in Florida face are very different from those faced in California, for example. For that reason, there’s no one-size-fits-all approach to repairs.
Contact your insurance agent, and ask what changes you could make to ensure your home withstands the next threat.[14] Your state insurance department may also have a list of recommended repairs that could help your home become more resilient.[8]
Document every change you make, and share them with your insurance company. Experts say upgrades typically mean lower premiums, but the amount you could save varies widely depending on what you changed and how much your home is worth.[15]
Complex Insurance Policy Language Decoded
When you’re working with insurance companies, you’ll want to speak like an expert. Understanding a few common terms and phrases can be helpful.
These terms are common in policies involving high-risk properties:[16]
- Actual cash value: This is the amount your insurance company would pay to replace your home, subtracted by the value of depreciation.
- Additional living expenses: If a covered event forces you to live outside of your home, your insurance company will help pay for the stay.
- FAIR plan: This is an insurer of the last resort if you can’t get coverage in the standard market.
- Rating plan: This is a system that shows adjustments to the premium that reflect the most current losses the insured person experienced.
- Replacement cost: This is the amount your insurance company will pay for the true cost of repairs or replacement with materials of similar kind and quality.
- Standard market: This is the typical market of homeowners insurance companies.
- Surplus lines: This is insurance for higher risks that standard insurers decline.
- Underwriting: This is an insurance company’s method of assessing risk and determining premiums.
What About Home-Based Business Coverage?
As you’re examining your policy and looking for a new partner, consider your workplace. If you conduct your business from home, you may need more than a standard homeowners policy can provide.
A typical homeowners policy covers $2,500 in equipment, and nothing more.[17] You may need help for lost income, liability concerns, and additional issues. Ensure that any new plan you pick protects you from these home-based hazards.
Get the Coverage You Need
If you can’t get homeowners insurance because of claims or risk, don’t despair. With a little planning and hard work, you can ensure that your investments are protected.
You may need to switch from a standard policy to a high-risk plan, at least for a while. But after making repairs and proving your trustworthiness, you could get back on track and get the help you need.
Remember to lean on your state’s insurance department for additional help, as needed.[8]
Sources
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What’s Causing Americans to Drop Home Insurance Coverage? (August 2023). Insurance Business.
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California Senators Urge Insurance Commissioner to Address Homeowners’ Market Crisis. (August 2023). Insurance Business.
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Understanding Homeowners Insurance. State of Oregon.
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CLUE (Comprehensive Loss Underwriting Exchange). Office of the Insurance Commissioner, Washington State.
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What if I Can’t Get Coverage? Insurance Information Institute.
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Surplus Lines Insurance Guide. Texas Department of Insurance.
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LexisNexis CLUE (Auto and Property Reports). Consumer Financial Protection Bureau.
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Insurance Departments. National Association of Insurance Commissioners.
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Oregon FAIR Plan Serves As a Last Resort for People who Can’t Get Home Insurance. (December 2022). KOIN 6.
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Prompt Action on Fire Insurance Has Yet to Help California Homeowners. (November 2023). Cal Matters.
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Surplus Lines. (September 2023). National Association of Insurance Commissioners.
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Force-Placed Insurance: What You Need to Know. New York State Department of Financial Services.
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Disaster-Proof Homes Gaining Traction. (February 2016). Architect.
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12 Ways to Lower Your Homeowners Insurance Costs. Insurance Information Institute.
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7 Things That Raise Homeowners’ Insurance Rates. (November 2023). Today’s Homeowner.
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Guide to Homeowners Insurance. Oregon Department of Consumer and Business Services.
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Insuring Your Home-Based Business. Insurance Information Institute.
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Home Insurers Are Charging More and Insuring Less. (July 2023). The Wall Street Journal.