A little over 63 percent of Americans own their home, according to the U.S. Census Bureau, but for some getting homeowners insurance can be arduous. Depending on where you live or how many claims you file, an insurer may not want to take on the risk of insuring you.
"The reason a policy would be cancelled is that the risk has changed substantially for the insurance company," says Gina Clausen Lozier, an attorney at Berger Singerman LLP in Florida, who focuses on first- and third-party insurance claims and coverage analysis.
So what happens if your home insurance is cancelled? Here's what you need to know.
Why Your Homeowners Insurance May be Cancelled
Home insurance cancelled after an inspection: If you have an existing policy, it may be cancelled once it's up for a renewal if the insurance company's underwriter inspects the property and finds an unacceptable risk. Potential fire hazards, pipes, kitchens and other structures in disrepair may cause a cancellation. The only way an insurer would consider reinstating your policy is if you address these issues and complete repairs.
Roof damage/age of roof: If you have an older home with an older roof, you could be at risk for a home insurance cancellation. Some insurance companies will require an inspection if your roof is at least 20 years old and others won't even insure your home if the roof is that age.
A roof's typical life expectancy is around 30 years, but the older the roof the more risk for your insurer. If your roof fails an inspection when you're up for a renewal, your insurer can cancel your insurance and require a roof replacement to reinstate your policy.
Multiple claims: Your home insurance can be cancelled after filing too many claims. Filing multiple claims may make your insurer think there are too many risks in your home, and this could result in a higher premium or cancellation. If you bundle your homeowners insurance with your car insurance, this may affect your auto policy, too.
"A homeowners policy could be canceled for too many claims and there could be a danger in having your policies bundled," says Keith Balsiger, president of Balsiger Insurance in Nevada. "Too many claims on the auto might cause the insurance company to cancel the entire policy. As a consumer, you will have to weigh the benefits of bundling and make an informed decision."
Living in a high-risk area: "While an insurance company could drop a customer due to too many claims on an individual basis, they could also elect to not insure any properties in an area prone to claims via natural disasters, such as coastal regions," Balsiger says. This could include areas prone to tornadoes, flooding and hurricanes.
For insurers, it all boils down to costs, so if an area has a history of claims or a homeowner files multiple claims, an insurance company could deem the property an unacceptable risk and either raise the premium or cancel your policy altogether.
"Insurance companies would normally not react to one bad year," Balsiger says. "They do modeling and look at profitability over a period of time. It's not uncommon to have a year where the insurance company loses money."
Pets: Homeowners insurance covers your property and the contents within it, and many often cover pets in your home. However, depending on state law, insurance companies typically maintain an exclusion list for pets they won't insure. This can include everything from exotic pets like a boa constrictor to certain dog breeds, such Cane Corsos.
If your exotic pet or blacklisted breed bites someone or damages your neighbor's property and you must file a claim, your insurance company may cancel your policy if they weren't informed of the pet when they issued your coverage. Full disclosure is important -- hiding details from your insurance company could give them a justifiable reason to cancel your coverage.
Not paying your premiums: Not paying your premiums can put you at risk for a home insurance cancellation if you also present a huge liability to your insurance company in other ways. For example, if your roof is in need of replacement, if you've filed multiple claims -- and in addition to these factors -- you've made late payments consistently, your insurer has a legitimate reason to cancel your policy.
Insurance providers usually offer homeowners some flexibility when it comes to payment due dates, including a 30-day grace period to allow you to catch up on payments (though this varies by state). If you pay your entire premium during this grace period, you can maintain your coverage and your insurer will likely pay any claims made during that period, if they meet the terms of your policy.
Bad credit: Most insurers now perform a credit check before issuing insurance. While this alone might not make you ineligible for coverage, it can affect how much you pay for it.
However "credit along with a poor claims history might be used together to determine if an insurance company will provide coverage for you," Balsiger says. "In most cases you will be offered coverage -- the question is will it be affordable?"
How to Get Home Insurance if You've Been Cancelled
Insurance companies are required to notify homeowners in advance of when they plan to cancel a policy. If a cancellation takes place right after a policy is put in place, an insurer typically can give a homeowner 45 days notice of cancellation. However, there are different laws for offering a renewal or sending a homeowner a non-renewal notice, and these vary by state. In California, for example, a non-renewal notice must be sent within 45 days of a cancellation. In many cases, if an insurance company fails to inform you in writing, your policy will remain in place until 45 days after the notice is sent.
Depending on why your insurance was cancelled, you'll have several options to either reinstate your policy or find a new insurer.
If your insurance coverage was cancelled because an inspection revealed an unacceptable risk on your property, repairing the issue, such as a damaged roof, could result in your policy being reinstated. If your insurer still refuses to insure you, you can dispute the cancellation and request remediation or file a complaint with the state department that oversees the local insurance industry.
However, if your home insurance was cancelled because you filed too many claims or live in a high-risk area, it's unlikely that your policy will be reinstated and you may have difficulty finding another provider. So what do you do if you've already filed a claim and your insurer has dropped you? Your insurer may still cover it if the incident happened during the policy period. However, if your policy was voided because of fraud or misrepresentation, you'll likely have to cover the damage out-of-pocket.
"Most insurance companies underwrite or review the eligibility of a property up front. Existing damage, depending on how bad and what kind, could make a property ineligible for coverage with the 'normal' home insurance companies," Balsiger says. "There are always high-risk options that might step in depending again on the severity and type of existing damage. These will, of course, cost more."
If you must find new insurance, there are companies that specialize in helping high-risk homeowners. Assigned risk insurance services exist for this reason. If you have difficulty getting insurance, call your state's department of insurance and ask for information for assigned risk carriers in your area. The one downside is that you'll probably pay higher premiums, but that's better than being uninsured.
FAIR Plans, or Fair Access to Insurance Requirements Plans, are also an option for high-risk homeowners. These plans allow high-risk homeowners to get coverage, but they often come with higher premiums and inflexible terms and conditions. More than 30 states offer this coverage. Find the list of states here.
Lender-placed insurance is also an option of last resort, Clausen Lozier says. Under these circumstances your mortgage company will be notified that you no longer have insurance and will inform you in writing that they are placing insurance on your property -- becoming your insurance provider in the process.
"The issue with lender-placed insurance is that it protects the mortgage company, but not the homeowner," Clausen Lozier says. "Typically, it's more expensive and doesn't provide coverage for personal property and contents and doesn't cover additional living expenses if you have a loss and have to leave your home."
How to Ensure Your Insurance Isn't Cancelled Again
To reduce your risk of a home insurance cancellation, make sure you've addressed anything an insurer might deem an unacceptable risk. Doing routine maintenance on your home can also help you avoid big-ticket repairs when your policy is up for renewal.
Don't file claims too frequently, unless you absolutely must. Clausen Lozier also advises homeowners to ensure their insurance company inspects their home before they write the policy. Videotape and photograph the property so you have a record of what the property looked like at the time insurance company insured it, she says.
Taking these steps could protect you in the event of a cancellation and increase the likelihood your policy is reinstated.