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It’s a shock when you get the news that your home insurance company is reneging on you, as thousands of policyholders in Florida recently experienced. Fortunately, there are options available to ensure that your home remains insured.
How Homeowners Insurance Companies Can Give You a Ride
Mark Friedlander, a spokesman for the industry-backed Insurance Information Institute, explains that there’s a difference between an insurer canceling a homeowners insurance policy and choosing not to renew it.
Cancellation generally refers to the policyholder canceling your coverage during the coverage period. Meanwhile, non-renewal happens when an insurer ends your coverage at the end of a renewal.
Common reasons for homeowners insurance cancellations
Insurers can usually cancel a policy if:
- You do not pay an insurance premium.
- You have committed insurance fraud or seriously misrepresented information on your insurance application.
- You fail to make timely repairs required by the new insurer after the home inspection ordered by the insurer.
In unusual circumstances, a state insurance regulator may allow a home insurer to cancel policies while they’re still in effect for reasons that don’t apply to you as a homeowner, Friedlander said.
For example, the Florida Office of Insurance Regulation recently approved the cancellation of 68,200 FedNat InsuranceGroup policies in the Sunshine State as the company undergoes a financial reorganization. Under state law, these policyholders received 45 days’ written notice.
The policy can be canceled if state regulators determine that an insurance company with financial problems is insolvent, meaning it cannot survive. Several home insurance companies in Florida and Louisiana filed for bankruptcy last year, Friedlander said. In the event of bankruptcy, the insurance company is closed, and state regulators take over its assets.
In bankruptcy, the guaranty association usually steps in to cover outstanding insurance claims and provide coverage.
Each state, along with the District of Columbia and Puerto Rico, has two types of guaranty associations: a property and casualty guaranty association, which includes homeowner’s insurance, and a life and health guaranty association. By law, a home insurer licensed to do business in a state must be a member of that state’s property and casualty guaranty association.
When an insurer is declared insolvent, the guaranty association assigns the injured insurer’s policies to another insurance company or covers the policyholders themselves.
Common reasons for not renewing homeowners insurance
Non-renewal occurs when your insurance company decides not to renew your policy after it expires. If your insurer decides not to renew your policy, they usually have to give you advance notice. You must receive a certain number of days’ notice, which usually depends on state law. The insurer must also provide a reason for refusing the extension.
Reasons for non-continuation may include:
- The insurance company is reducing the number of policies it will continue or sell where you live. For example, if there were frequent natural disasters that caused many lawsuits in the area.
- The insurance company is completely leaving the home insurance market in your area due to commercial reasons.
- You have committed insurance fraud.
- Your insurance credit score has dropped significantly.
- You have filed multiple claims.
What if your homeowners insurance has lapsed?
Insurance companies are generally required to give you notice of non-renewal or cancellation before your coverage expires, such as 30 or 45 days in advance. This gives you time to find another policy.
The insurer must explain the reason for termination of coverage. But if it doesn’t work or you don’t understand the reason, contact your insurance company. If you disagree with the reason, consider filing a complaint with your state’s insurance regulator.
To appeal your non-renewal, if it is because your home is located in a potentially high-risk area for severe weather, you may need to provide documentation that your home is not located in a high-risk area or prove that you have completed measures to mitigate severe weather conditions.
Start shopping for a new homeowners insurance policy
Whether you’re appealing a cancellation or a nonrenewal, you should start purchasing new home insurance to avoid losing coverage.
It’s a good idea to compare home insurance quotes between multiple insurance companies for the same coverage to make sure you find the cheapest homeowners insurance that fits your needs. Be sure to take out a new policy before the old policy expires and tell your mortgage company about the new insurance company.
You may need a FAIR plan as a last resort
But what if you can’t find coverage with a new insurance company? As a last resort, you can purchase a Fair Access to Insurance Claims (FAIR) plan, which is a government program that provides insurance to high-risk consumers.
FAIR plans are usually more expensive than a standard policy and have limited coverage.
Friedlander notes that Citizens Property Insurance Corp., Florida’s insurer of last resort, is adding 6,500 policies a week and has surpassed a total of 850,000 policies to become the state’s largest home insurer. It is expected that by the end of 2022, the number of citizens will exceed 1 million insured.
On the other side of the country, California imposed a mandatory one-year moratorium on insurance companies canceling or not renewing home insurance policies in or near certain wildfire areas after the governor declared a state of emergency.
Related: How FAIR home insurance plans work
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FAIR Plan Frequently Asked Questions When Your Homeowners Insurance Ends
Here’s some key information to know about FAIR plans if you can’t get homeowners insurance elsewhere after your policy has been canceled.
Frequently asked questions
A FAIR plan is a type of home insurance you get if you can’t get coverage anywhere else, such as if your home is in a high-risk area for hurricanes or wildfires.
These plans are overseen by state entities, but they are funded by state taxes and all licensed private insurance companies in the state. All costs and profits are shared among this pool of insurance companies, which facilitates the absorption of risks and related claims.
What does the FAIR plan cover?
FAIR plans cover damage to your home caused by fire, vandalism, riots and wind damage. Most FAIR plans reimburse actual cash value, not replacement cost.
According to the Insurance Information Institute, only about 12 states have FAIR plans that offer supplemental coverage and include homeowners liability insurance.
For example, in California you can purchase what’s called “term difference” coverage, which means you get additional coverage so that your FAIR policy provides the same or similar coverage as a standard home insurance policy.
How do I purchase a FAIR plan?
You can apply for a FAIR plan on your state’s FAIR website. Usually, an insurance agent fills out an online application and submits it on your behalf. These agents act as liaisons who can help you apply for a FAIR plan. You can usually look it up on your state’s FAIR plan website.
To be eligible to purchase a FAIR plan, you may need to provide evidence that you cannot purchase a plan on the private market, and you may need to make improvements that reduce your insurance risk from fire, theft or water damage, such as making roof repair or modernization of electrical systems.