A cancellation notice from your insurance carrier can be a surprise. Even if you’ve paid your premiums on time, never filed a claim, and never made any changes to anything to affect your coverage, your insurance carrier can still refuse to renew your policy. In most cases, the insurance company isn’t required to provide more than a vague reason, if any at all.
There are many things which can affect your insurance coverage, and not all of them are within your control. Here are a few examples, as well as some ideas to help avoid them if possible.
Claims Filed Against Your Insurance
Claims which has been filed against your insurance company is a common reason for an insurance company to refuse to renew coverage. Even if the claims are made through no fault of your own, each claim paid against your policy elevates the level of risk you represent to the insurance company and lowers the profitability of your policy.
It’s tempting to use your insurance as a maintenance and repair policy, and file a claim against any damage; even it barely exceeds the deductible. This is something you should avoid. At the very least, it will raise your premiums, and more than two or three claims will almost certainly result in a cancellation of your policy.
This might be the most surprising reason for policy cancellation. But it’s not uncommon. Your furry friend can represent a significant risk to an insurance company. Claims from dog attacks tend to be expensive, and often result in lawsuits asking for damages beyond medical costs. Many insurance companies have lists of prohibited breeds, and will not hesitate to cancel your policy if you ignore the list. Additionally, many insurance companies will not provide coverage for exotic or dangerous animals. (Sure, that alligator that lives in the swimming pool might be a conversation starter, but you’re probably nothing more than the food he hasn’t caught yet to him.)
If you have a pet, be sure to discuss it with your insurance company. Be honest about breed, sex, and age. It may cost a bit more on your monthly premium, but not providing the information, or providing false information, can result in a dropped policy, as well as not having coverage if something unfortunate happens. And if you do happen to have an alligator in the swimming pool, a call to Animal Control is probably a good idea.
Claims Filed in Your Area
Insurance claims filed around your area can also affect your risk profile with the insurance company, even if none of those claims are filed against your policy. For example, if a significant number of homes in your zip code are damaged by fire or vandalism, the odds of your home being damaged increase, which creates a higher risk for the insurance company. In and of itself, this would typically result in a higher monthly premium, but it can also push your risk score over what the insurance company considers acceptable.
It’s important to start shopping for a new policy as soon as you’re notified of cancellation for this reason, as it may be difficult to find coverage. If you’re not already using an insurance broker, consider contacting one. A broker will often work with several different insurance companies, and will probably be able to locate coverage more easily.
Failure to Maintain or Repair the Property
This is another common reason for coverage to be dropped or declined, particularly with homeowner’s policies. Insurance companies employ people to do “drive-by” or “visual” assessments of properties, in addition to using other things (such as publicly available satellite imagery.) They are looking for stuff like overgrown and untended yards, recent damage which fails to be repaired, changes to the property which they are not notified about, storage of hazardous items, and other factors which represent an increased risk. Most of the time, you’ll be notified by the insurance company if an issue is found, and will be given a chance to repair or correct the problem.
You can avoid this by maintaining the property, and repair any damage wholly and quickly. For example, be sure to replace any roof tiles or shingles that are damaged or missing, keep the yard maintained and free of trash or junk, and trim any tree limbs which might damage the home if they were to break.
Using the Property as a Rental
Typically, a homeowner’s policy will specifically exclude the use of the home as a rental property, and may also ban the taking of boarders or tenants. It’s something that happens so much that, chances are, you were asked about it when you applied for coverage. If you do rent the property out and fail to inform the insurance company, they will almost certainly drop you if they find out. Moreover, your insurance may not cover losses or accidents in this case.
If you decide to use a property as a rental home, or even to rent a room in your house out, contact your agent and discuss changing your insurance coverage before putting up a for-rent sign. The chances are that you won’t have to make any significant changes, but you may need to address some things. Also, by contacting the insurance company first, you can get at least an idea of the new premium, which may change the amount of rent you need to charge.
Commercial Use of a Residence
More and more people work from home. But bringing home your laptop and sending a few emails over the weekend, or working as a consultant from a home office will generally do not create issues with your insurance policy. However, running an auto-repair shop in your garage or a machine shop in your basement without notifying the insurance company can result in your policy being canceled or non-renewed. And, in many cases, if you’re running a commercial business out of your home and an accident occurs, that accident may not be covered by your insurance.
If you’re going to be running a business out of the home, contact your agency or broker and discuss policy options with them. Depending on what you’ll be doing, you may not have to change your policy at all, but the only way to be sure is to check with the insurance company. Also, keep in mind that may be required by local laws to have specific insurance if you are running a business out of your home.
Because there are so many things that can affect your insurance coverage, one of the most important things you can do is to contact your agent or insurance company at least once a year and ask for a policy review. Take the time to walk through your policy, your coverage, and your options, and consider changes. Listen to the advice of the agent you speak with, since they will almost certainly have a complete understanding of what coverages you do and don’t need, and the best way to put the pieces together. If you bundle your insurance, be sure to review the benefits and conditions of doing so. It might save some of your premiums, but it’s also possible to wind up with a higher homeowner’s premium if you have a fender bender.
It’s not always possible for you to keep from getting dropped by your homeowner’s insurance carrier. But there are things you can do to minimize the chances of that happening. Be honest, communicate changes, and keep your premiums paid, and chances are you’ll never have a problem. Keep in mind that as long as you’re not costing them money and represent a low risk, they want your business, and will do what they can to keep it.