A notice from your insurer dropping your home insurance policy can feel like your largest investment is at risk. Unexpected jumps in the cost of your coverage can put a strain on your budget. And, problems with getting the right amount and type of insurance can make your home more difficult to sell. Changes in the insurance business across the country are making these problems more common for homeowners.
In response to extreme weather events and natural disasters, some home insurance companies are going out of business. In states like Florida and California, several insurers have stopped selling policies. Other companies have increased the price of insurance to the point where homeowners can’t afford it. Homeowners are facing new decisions about insurance, often with limited time to consider their options.
Your mortgage lender generally requires your property to be insured. If you stop paying for coverage or let the policy expire, the mortgage lender is allowed to buy insurance and charge you for it. This is called force-placed insurance or lender-placed insurance.
A force-placed insurance policy usually protects only the lender, not you. The cost to you can be twice as much as you’d regularly pay for insurance.
Under federal law, your mortgage servicer has to notify you at least 45 days before it charges you for force-placed insurance.
Your current insurance policy shows a renewal date. One to three months before this date, your insurer should notify you if they decide not to renew your coverage. That gives you time to shop for another policy.
Even if the insurer renews your coverage, the cost can still go up – for some properties, the increase could be $100 a month or more. About a month before the renewal date, your insurer tells you the cost for the next year.
When you receive a notice saying your coverage won’t be renewed, call your insurance agent or company to ask why. Depending on the situation, the insurer might take back their decision and renew your policy.
To avoid force-placed insurance, you need coverage that matches your property and any unique requirements. For example, your mortgage might require you to have a policy that covers specific risks, such as fire.
Typically, state insurance regulators approve which companies can offer policies to homeowners in their states. To shop for insurance policies, contact your state’s insurance department and find out what companies are operating in your area. .
Most U.S. states and the District of Columbia provide insurance programs called Fair Access to Insurance Requirements (FAIR) plans, or a similar program. FAIR plans offer coverage even in areas where insurance companies have decided not to sell policies. Through FAIR plans, everyone can have a basic level of protection from catastrophes. However, it typically costs more than a standard policy.
After you have gotten your own coverage, tell your mortgage servicer about the change in insurance. You have the right to remove force-placed insurance once you have your own insurance policy. See our guide on removing force-placed insurance.
Making home improvements, like installing a fire alarm or security system, could make it more likely for your insurer to renew your policy. This might also lower the cost. Other home improvements that reduce the risk of loss could help, like strengthening your roof or updating your plumbing, electrical, or heating systems. Ask your insurance agent or company about options for your situation.
According to most predictions, extreme weather events and the natural disasters they trigger are expected to intensify and spread to more areas of the country. Check our tips for assessing your climate risk, and you can fill out to keep track of your important financial information.
The CFPB continues to work with policymakers, keeping an eye on the financial system and mortgage markets for stability.
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