In the middle of having to deal with tornadoes and hurricanes, consumers may have to deal with another storm – one from insurance companies.
The Consumer Financial Protection Bureau (CFPB) says that in response to the extreme weather events and natural disasters we’ve been facing, some home insurance companies are going out of business.
In California – hit the hardest by these calamities – several insurers have stopped selling home policies completely. California was such a lose-lose proposition that State Farm pulled out.
Farmers recently pulled out of Florida, too. Still, others have hiked the price of insurance to a breaking point that homeowners can’t afford.
“A notice from your insurer dropping your home insurance policy can feel like your largest investment is at risk,” the agency said.
“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.”
Is this you?
It is up to the homeowner to choose their own insurer, but if they cease payments or let their insurance expire, their mortgage lender can purchase coverage and charge them for it.
This “force-place insurance” protects the lender, though – not the homeowner. The CFPB says the cost back to the homeowner can be twice as much as they would regularly pay for insurance.
Under federal law, a mortgage servicer has to notify you at least 45 days before it charges you for force-placed insurance. If the clock is ticking on your policy, the agency offers suggestions on how to deal with these various situations.
Check your current insurance policy’s renewal date. The CFPB says at a minimum of one to three months before a policy renews, your insurer should notify you if it decides not to renew your coverage. That window may seem short, but it’s enough 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,” the agency says.
Ask your insurer to reconsider. If you receive a notice from your insurer informing you that your coverage won’t be renewed, you should ask why. The CFPB says asking won’t hurt and, depending on the situation, the insurer might reverse their decision and renew your policy after all.
Shop around for the right coverage. To keep force-placed insurance off your stoop, keep in mind that any coverage you buy has to match the unique requirements of your specific property.
For example, if you’re in a flood plain, you’ll need coverage for that. Some mortgages require policies to have other risks such as fire, so make sure those boxes are checked, too.
State insurance regulators may be able to help
Fortunately, the state in which you live is on your side thanks to state insurance regulators approving which companies can offer policies to homeowners in their states. Find out what companies are available in your state by contacting your state's insurance department. That list is available here.
Choose insurance through your state’s FAIR plan. All states in the U.S. have some form of a FAIR plan – Fair Access to Insurance Requirements. However, how FAIR is constructed and regulated varies from state to state. Through these plans, every homeowner can have a basic level of protection from natural disasters, but note that it generally costs more than a standard policy.
Notify your mortgage servicer. The CFPB’s last word to the wise is that once you have gotten your own coverage, you need to inform your mortgage servicer about the change.
“You have the right to remove force-placed insurance once you have your own insurance policy,” the agency asserted, suggesting anyone in this situation review its guide on removing force-placed insurance.
Looking to lower your insurance costs?
If you're simply looking for a way to lower your outlay for homeowner's insurance, there are several ways as ConsumerAffairs' Mark Huffman recently discovered.
Experts that Huffman spoke with explained how consumers can reduce the cost of insurance while still maintaining some coverage, even in the event of major damage.
You can find those tips out here.