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Homeowners insurance protects you financially if a covered event like fire, storm, or theft damages or destroys your home and property.
Having adequate coverage can save you hundreds of thousands of dollars and provide peace of mind if disaster strikes. It’s important that you have enough coverage to repair or rebuild your home and replace your belongings should the unexpected happen.
If an insurance company drops you, it means your policy will either be canceled or not renewed when it expires. And depending on the reason for the cancellation or nonrenewal, being dropped can make it difficult to find alternative coverage.
In this post:
- How can you be dropped?
- 3 steps to take after being dropped
- Home insurance cancellation
- Home insurance nonrenewal
- Ask for a CLUE report after being dropped
How can you be dropped?
An insurance company can discontinue your homeowners coverage for various reasons. For example, if you fail to pay your premium or adequately maintain your property, you could be dropped. Another reason the provider could discontinue coverage is if they cease to operate in your state.
If your policy is under 60 days old, insurers can cancel it for almost any reason. Beyond 60 days, an insurance company typically can’t cancel your policy unless:
- You failed to pay insurance premiums
- You obtained the policy through misrepresentation or fraud
- There’s a substantial risk increase from the original agreement
Acceptable reasons for cancellation will depend on each state’s insurance laws and individual providers.
Nonrenewal occurs when an insurance company decides not to renew a policy after it expires. Reasons for not renewing a policy can include the following:
- Hazards discovered during an inspection
- Filing too many claims
- Decrease in your insurance credit score
- New pet in the household
- Change in insurance company operation
3 steps to take after being dropped
Being dropped by your insurance provider doesn’t mean you’re ineligible for coverage elsewhere. However, it can paint you as high-risk in the eyes of certain insurers. Insurance companies are required by law to provide adequate notice of nonrenewal or cancellation to allow homeowners time to find coverage before expiration.
Follow the steps below to find a new insurer if you’ve been dropped by your current company.
- Shop for a new policy: Start shopping for new coverage as soon as you receive notice that your policy will be canceled or nonrenewed. It’s crucial that you secure a new policy before your current one ends to avoid a lapse in coverage. (A lapse in coverage will make your premium even more expensive, assuming you can find a company willing to insure you.)
If your home has been labeled high-risk, obtaining a new policy can be difficult. If that’s the case, many states have Fair Access to Insurance Requirements (FAIR) plans that make insurance available to individuals who can’t get coverage in the voluntary market.
See California FAIR plan insurance as an example. These policies often come with higher costs and less coverage but can be a good stepping stone to conventional coverage in the future.
- Compare quotes: Unlike applying for credit, getting quotes from insurance providers doesn’t affect your credit score. Get quotes online from multiple providers to find insurers willing to work with you that offer options to fit your needs.
- Improve your risk profile: Determine why your homeowners insurance coverage was dropped and take the necessary steps to ensure it doesn’t happen again. Make payments on time, perform regular maintenance on your home, and review your policy annually to stay updated on your coverage.
Home insurance cancellation
Home insurance cancellation occurs when your provider cancels your policy before it expires. As mentioned above, once your policy’s been in effect for more than 60 days, insurance companies typically can only cancel it for two reasons — failure to pay the premium and breach of policy.
Specific guidelines will vary depending on your state. Your insurer must send you written notice of why it’s canceling your policy. If you’re late making one payment, your insurance company will probably not drop you. However, they may discontinue coverage if you continue to miss or make late payments or if they’re unable to process your payment due to insufficient funds.
Also, your insurer could drop coverage if your application contains falsehoods or evidence of fraud. It can also happen if the condition of your home deteriorates due to lack of maintenance. In this instance, insurance companies may be required to give a homeowner up to 90 days to make the necessary repairs.
Home insurance nonrenewal
Typically, homeowners insurance policies last 12 months and require renewal to stay active. Home insurance nonrenewal usually occurs at the end of the policy period if the insurance company decides not to renew a policy. Laws vary by state, but many require providers to give homeowners 30 to 60 days notice of nonrenewal before expiration.
An insurance company may decide not to renew a homeowners policy for various reasons, including the following:
- Claim history: Filing too many claims in a short period can be a red flag for insurance providers, causing them to examine whether to continue coverage.
- Insurance score drop: Insurance scores are used to predict the likelihood of filing insurance claims. Scores are calculated from your credit history and other factors. If your credit history takes a hit, whether from missed or late payments or other negative marks, it could cause your insurance score to drop, increasing the insurance risk.
- Liability hazards: If hazards are found during a home inspection, it could change the risk level of insuring the property. For example, a claims adjuster may notice other hazards or improperly maintained features while inspecting damage for an insurance claim. The insurance company may give you time to make the necessary repairs, but it could also decide the risk is too high long-term and not renew coverage.
- Coverage no longer available: Your insurance provider may decide to pull out of your state. If that happens, they won’t renew your policy.
Ask for a CLUE report after being dropped
If your insurance company drops your coverage for any reason, you’re entitled to receive a Comprehensive Loss Underwriting Exchange (C.L.U.E.) report. The report contains insurance records for your home, including your claims history. Providers use it during the underwriting process to rate your policy.
Under the federal Fair Credit Reporting Act, you can request a copy of your C.L.U.E. report through the LexisNexis website or by calling (866) 312-8076.
Review your C.L.U.E. report to ensure it’s accurate. If you find errors, file a dispute with LexisNexis directly to have them removed from your report. LexisNexis will review the potential issue with your insurance company.
Disclaimer: All insurance-related services are offered through Young Alfred.