…Or Your Rates Dramatically Increased
You might not be surprised if your homeowner’s insurance premium is increased after you file a costly claim. But did you know that the insurer might go a step further and cancel your coverage or refuse to renew it? And it isn’t just claims that can torpedo a policy. Insurers sometimes terminate a policy or raise premiums to prohibitively high levels for much more surprising reasons—ranging from a drop in your credit score to your purchase of a trampoline to a broken gutter.
Having a policy terminated can be more than a minor inconvenience. When you seek to replace your policy elsewhere, other insurers might quote very steep premiums or decline to offer coverage at all. That’s because when an insurer terminates a policy, the insurer typically notes that it has done so in a database that other insurers check before approving applicants. That policy termination can scare off other issuers.
Here, seven surprising reasons your homeowner’s insurance could be terminated or your premiums pushed up…
Things Seemingly Unrelated to Your Home (or to You)
Credit score. A drop in your credit score could result in nonrenewal of your policy or a dramatic increase in your premiums. How dramatic? In 37 states, people with poor credit pay more than twice as much as people with excellent credit, on average, according to a 2014 study. Only three states—California, Massachusetts and Maryland—prohibit homeowner’s insurance issuers from considering credit scores. (Credit scores also seem to have little effect on homeowner’s insurance in Florida.) Insurers have determined that people who are responsible with credit also tend to be responsible with home maintenance and make fewer claims.
If your insurer tells you that your credit score is among the reasons your policy is not being renewed or your rates are rising, examine your credit report for any inaccurate information that might be unfairly pulling down your score. (You can obtain a free copy of your report each year at AnnualCreditReport.com) If you find inaccuracies, inform your insurer of this and ask whether it would reconsider its decision if you get the problem sorted out. If not, resolve the credit problem as quickly as possible and then ask to be “re-rated” by the insurer.
Helpful: If there is no easy way to improve your score, apply for homeowner’s coverage through small and midsize regional homeowner’s insurance issuers, which are less likely to check scores. An insurance-shopping website, insurance broker or your state department of insurance could help you locate these smaller issuers.
Driving infractions. Believe it or not, speeding tickets can affect your homeowner’s insurance. Insurers have concluded that irresponsible drivers tend to be irresponsible home owners, too.
There are no hard-and-fast rules here, but if you get more than two moving violations that put points on your driving record in a year—or even one serious citation such as for a DUI—you could have trouble maintaining your homeowner’s insurance at a reasonable rate. It’s worth investigating whether your state offers any way to quickly remove some of the bad-driving “points” that will appear on your record, such as by taking a driver-safety course. It’s these points—not the violations themselves—that can catch the notice of homeowner’s insurance providers.
Insurance claims by your home’s previous owners. If the home’s previous owners filed multiple claims, that could increase the risk that your policy will not be renewed if you make even one or two claims. This is particularly likely if the claims are similar and point to a serious underlying problem with the home, such as wiring issues that have led to multiple fires.
What to do: If you have owned your home for less than seven years, request the property’s Comprehensive Loss Underwriting Exchange (CLUE) report. You can obtain this report for free as often as once per year at PersonalReports.LexisNexis.com (select “Insurance Report” under “FACT Act Disclosure Reports”). If you discover multiple claims by the prior owners, you should consider that an additional reason to pay for covered repairs of modest size out of pocket rather than file claims. (By law, CLUE reports can include claims only up to seven years old—less in some states—so if you have owned your home longer than that, there’s no reason to check for former owners’ claims.)
Helpful: Before purchasing a home, insist that the seller provide you with the property’s CLUE report. This report could point to underlying problems.
Things that Might Seem Inconsequential
Small claims. It isn’t just big claims that scare off home insurers. Repeated small claims can lead to termination, too. Insurers sometimes consider policyholders who file repeated small claims to be nuisances who are not worth the trouble.
What to do: Increase your deductible to at least $1,000 and preferably $2,000 or $2,500 to remove the temptation to make small claims. Use the money this saves you in premiums to pay for minor home repairs.
Asking questions. Call your insurer to discuss the possibility that making a claim could lead to an entry in your CLUE report. Having a number of CLUE entries that your insurer deems excessive can cause nonrenewal.
Do not contact your insurer to discuss a potential claim unless it is extremely likely that you actually will make a claim. If you feel you must call your insurer to discuss the possibility of making a claim, speak in hypothetical terms and make it very clear that you are not currently making a claim. Example: “I’m not filing a claim, but in theory, if someone had the following happen, would it be covered?” There is anecdotal evidence that phrasing things this way reduces the odds that the call will be logged into your CLUE file, though it still is possible.
Home-maintenance issues visible from the road. Your insurer might be watching you. Insurers sometimes conduct unannounced drive-by inspections of properties. If your property is deemed to have maintenance issues, you might receive a letter threatening cancellation or nonrenewal if repairs are not made within 60 or 90 days.
Inspectors often focus on things such as missing shingles or broken gutters that can lead to greater home damage and insurance claims, but even basic upkeep issues such as an unmowed lawn could trigger unwanted insurer attention. To insurers, such things can be signs that the home is not being well-maintained in other, more important ways.
Warning: It is especially important for landlords to keep the portion of property that is visible from the road well-maintained—drive-by inspections of rental properties are particularly common.
Trampolines, tree houses, swimming pools and dog breeds that are considered dangerous. Many home owners do not realize that their policies require them to inform the insurer if they obtain one of these potential liability risks. Some policies prohibit these things altogether or have detailed rules that must be followed if they are obtained—perhaps a fence is required around a pool, for example. Read your homeowner’s policy carefully before obtaining any of these things.
Similar: Many homeowner’s policies restrict or prohibit renting out the home, such as through Airbnb. Violating this rule could result in policy cancellation or nonrenewal.
What to Do If Your Policy Is Terminated
Homeowner’s insurance policies can be terminated through either cancellation or nonrenewal. Cancellation means that the policy is ended during a contract period. Nonrenewal means that the insurer declines to continue covering the property when the policy term expires.
Issuers generally must provide at least 30 or 60 days’ notice. Start shopping for a new policy as soon as you learn that your current one is ending—other issuers might be wary once the termination is on your record, so it might not be easy for you to find coverage at an appealing rate.
If all the quotes you receive are significantly higher than what you previously paid, also contact your state’s insurance department to see if it has a high-risk insurance pool for home owners. (To find it, go to NAIC.org, select “Map” and then click on your state.)
This coverage could be expensive and/or limited, but it might be your best option if private issuers do not want your business.