Just in case you haven’t been paying attention, during the last two years homeowner’s insurance companies haven’t been advertising for new customers in most states. Instead, they seem be trying to get rid of their insureds who dare file any claims.
If you have filed one, two or even three claims with your homeowner’s insurance company within the last few years, when your policy comes up for renewal, don’t be surprised if your insurer sends you a “notice of non-renewal.”
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A few states have laws prohibiting insurers from “non-renewing” existing homeowner customers who pay their premiums on time. But in most states, insurers are free to “non-renew” based on too many claims or even no reason at all, regardless of how many years the homeowner has faithfully paid his/her insurance premiums.
WATCH OUT FOR HOMEOWNER INSURANCE NON-RENEWAL
Insurers rarely cancel a homeowner’s policy before it expires. However, if the insured does something to greatly increase the insurer’s risk, such as creating a hazardous condition on the property, the insurer is usually allowed to cancel an existing policy.
But, for public relations reasons, insurers rarely cancel an existing policy. Instead, they just wait until the policy is ready for renewal when they can easily refuse to renew (except in the few states with laws restricting non-renewals).
Filing an insured claim, especially a large claim, is the most frequent reason insurers refuse to renew even their longtime insureds. If you have more than two or three claims, which the insurer paid within the last few years, you’re a prime candidate for non-renewal.
HOW TO PREVENT HOMEOWNER INSURANCE POLICY NON-RENEWAL
Homeowner insurance, just like automobile insurance, is a necessary cost, which most insureds hope they never have to use. But unforeseen incidents, such as fire, accidents and thefts, create situations where homeowners are glad they have insurance.
But filing one or more homeowner insurance policy claims can trigger non-renewal. Worse, if you are buying a house that has a history of several claims within the last few years, you could find it very difficult, expensive or even impossible to buy homeowner’s insurance.
The insurance industry maintains a database of claims filed involving specific properties. Although you are a new buyer, the home seller’s history of insurance claims will affect your ability to obtain insurance and the rate you will pay.
For these reasons, smart homeowners have learned within the last two years to avoid filing insurance claims unless the loss is substantial.
To illustrate, I recently read the local weekly newspaper’s very popular “police blotter” column. Not far from my home, there was a reported theft of a lawn tractor valued at $1,600. If that homeowner files a theft claim with his homeowner’s insurer, the claim will probably be paid promptly. However, when policy renewal time occurs, that homeowner might receive a non-renewal notice due to that substantial claim.
The easy solution for most homeowners is to raise their policy deductibles. That’s what I’m doing.
By raising my policy deductible from $1,000 to $2,000 or more, I will save on my homeowner’s insurance premium. More important, I will reduce the non-renewal risk if I file an insured claim. However, I must be prepared to pay any loss below my policy deductible amount.
INSURE FOR YOUR HOME’S ACTUAL REPLACEMENT COST TO SAVE MONEY
Another way to save on your homeowner’s insurance premium is to insure for its actual replacement cost.
Some foolish homeowners insure for the amount of their mortgage balance. That’s usually a waste of money because the mortgage balance has nothing to do with the home’s replacement cost.
To illustrate, if you recently bought your house for nothing down with a 100 percent mortgage, you don’t need a homeowner’s insurance policy for the amount of your mortgage balance. The obvious reason is much of your purchase price is the non-destructible land value, usually at least 25 percent of the home’s market value.
Or, suppose you have paid down your mortgage balance for many years to just $25,000. You probably need a homeowner’s insurance policy for much more than your small mortgage balance in case the house burns to the ground. Insuring for actual replacement cost will avoid this potentially costly mistake.
Most insurers offer replacement cost policies, which include the extra costs of rebuilding to today’s tough building-code requirements. Be sure to ask your insurance agent to explain the replacement cost choices.
MORE WAYS TO SAVE ON HOMEOWNER’S INSURANCE
There are additional ways to save on your homeowner’s insurance without sacrificing coverage in the event of an insured loss:
1–CUT YOUR LIABILITY INSURANCE COVERAGE. Homeowner’s insurance policies include liability coverage. For example, if I visit your home and trip over a loose area rug, you could be liable for my injury.
However, rather than carry expensive homeowner’s liability coverage, you can usually save and obtain better coverage by slashing your homeowner’s policy liability limit and buying an additional umbrella liability policy.
To illustrate, my insurance agent recommends I carry $300,000 liability coverage on my homeowner’s policy and a $3 million separate umbrella policy to lower my insurance premium cost and increase my coverage. The umbrella liability policy also protects me if my negligence causes an automobile injury.
2–CHOOSE DEPRECIATED PERSONAL PROPERTY REPLACEMENT COST. A controversial insurance cost reduction method is to choose replacement cost coverage for personal property losses.
In the event of an insured theft or fire loss of your residence personal property, with depreciated personal property replacement cost coverage, your insurer will only pay today’s value of the personal property stolen or destroyed rather than full replacement cost.
For example, I enjoy my 14-year-old Sony 42-inch TV, which cost $2,300. Today, that TV is probably worth $100 if I could sell it. If it were stolen or destroyed in a fire, my homeowner’s insurer would pay me $100. But if I carried more expensive actual replacement cost personal property insurance, my insurer would have to pay me for an equivalent new TV, perhaps $1,500.
SUMMARY: The homeowner’s insurance market has radically changed within the last few years. Before filing claims, homeowners should consider the possible adverse consequences, including policy non-renewal.
To minimize possible problems, homeowners should (1) avoid filing claims unless absolutely necessary and (2) raising their insurance policies deductible to save on insurance costs and minimize policy claims.
Additional methods of lowering homeowner insurance costs include reducing liability coverage and obtaining an umbrella insurance policy, as well as selecting depreciated personal property replacement cost. For more details, please consult at least three local homeowner insurance agents to compare their coverage and costs.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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