Home Insurance

Changing Home Insurance Landscape: A Growing Concern

Your home is not just where you live; it’s one of your most significant investments, so, when you receive a notice from your insurer about the cancellation of your home insurance policy or notice a sudden surge in your coverage costs, it can be a cause for concern. These unexpected developments can put a strain on your budget and potentially complicate the process of selling your home. In recent times, changes in the insurance industry have made such problems more common for homeowners. In this article, we’ll explore what you can do when your home insurance is canceled or becomes prohibitively expensive.

Extreme weather events and natural disasters have become more frequent and severe, leading to a shift in the home insurance landscape. Some insurance companies are going out of business in response to these challenges, leaving homeowners in states like Florida and California with limited options. Furthermore, other insurers have raised their prices to a point where many homeowners find it difficult to afford coverage. These developments have left homeowners facing tough decisions about their insurance, often with limited time to explore their alternatives.

The Role of Your Mortgage Lender

In most cases, your mortgage lender requires your property to be insured. If you fail to maintain coverage or let your policy expire, your lender has the authority to purchase insurance on your behalf and charge you for it. This type of insurance is known as force-placed insurance or lender-placed insurance. Unfortunately, force-placed insurance typically protects only the lender, not you, and can cost you significantly more than a regular insurance policy.

Federal law mandates that your mortgage servicer must provide you with at least 45 days’ notice before charging you for force-placed insurance.

Staying Proactive to Avoid High Insurance Costs

One way to stay ahead of high insurance costs or cancellations is to keep a close eye on your insurance policy’s renewal date. Your insurer should notify you one to three months before this date if they decide not to renew your coverage, giving you ample time to explore other home insurance options. Even if your insurer renews your coverage, there’s still the possibility of an increase in costs, which could be substantial, sometimes exceeding $100 per month. About a month before the renewal date, your insurer typically informs you of the cost for the coming year.

Engage Your Insurer

If you receive a notice stating that your coverage won’t be renewed, don’t hesitate to contact your insurance agent or company to understand the reasons behind their decision. In some cases, discussing the situation with your insurer may lead them to reconsider and renew your policy.

Shopping for the Right Home Insurance Coverage

To avoid the need for force-placed insurance, it’s essential to have coverage that aligns with your property and any specific requirements, such as those imposed by your mortgage. Typically, state insurance regulators approve which companies can offer policies to homeowners within their jurisdictions. To explore insurance policies tailored to your needs, get in touch with your state’s insurance department, or you can find information through the National Association of Insurance Commissioners.

Consider State’s FAIR Plan

Most U.S. states, along with the District of Columbia, offer insurance programs known as Fair Access to Insurance Requirements (FAIR) plans or similar initiatives. FAIR plans provide coverage even in areas where traditional insurance companies have chosen not to sell policies. While these plans ensure a basic level of protection against catastrophes, they often come at a higher cost compared to standard policies.

Notify Your Mortgage Servicer

Once you’ve secured your own insurance coverage, be sure to inform your mortgage servicer about the change in insurance. You have the right to remove force-placed insurance once you have your own policy in place.

Prepare for Change

Making improvements to your home, such as installing a fire alarm or security system, can increase the likelihood of your insurer renewing your policy and potentially reduce costs. Other home enhancements that minimize the risk of loss, such as strengthening your roof or updating plumbing, electrical, or heating systems, can also play a significant role. It’s advisable to consult with your insurance agent or company to explore options that suit your situation.

Climate Risk Awareness

Given the predictions of more intense and widespread extreme weather events and natural disasters, it’s crucial to assess your climate risk. You can use tools like a disaster checklist to keep track of your important financial information in case of emergencies.

The Consumer Financial Protection Bureau (CFPB) continues to work closely with policymakers to monitor the financial system and mortgage markets for stability.

If you encounter problems related to force-placed insurance with your mortgage servicer, you have the option to submit a complaint, and the CFPB will work to get you a response. Similarly, if you believe your insurance has been wrongfully canceled and are dissatisfied with the response from your insurance company or agent, you can file a complaint with your state’s Department of Insurance.

Home Insurance