July 25, 2017

Know this: home insurers can “non-renew” for too many claims

If you have a home mortgage loan, then your lender is going to require you to carry homeowner’s insurance.

It may be the biggest purchase you’ve ever made, but the lender has a lot invested in that home, too. And they want their investment protected just as much.

But be warned: home insurance is not a maintenance plan—it’s simply coverage designed for sudden and unexpected large losses. Homeowners who file more than one claim unrelated to weather in less than three years can expect to be “non-renewed.”

Not good.

Now, non-renewal is not cancellation—insurance companies cannot cancel a policy that has been in force for more than 60 days, except in cases of failure to pay the premium, fraud or serious misrepresentation in the application.

But like any business, an insurer “reserves the right to refuse service to anyone.”

So, as long as they provide you with ample written notice to allow you to shop for a new policy, your insurer is free to non-renew your policy for almost any reason. Though, it’s usually for too many claims in a brief period.

Most carriers have tightened their company’s claims restrictions in the last few decades. Some are a little looser with the number of claims, some a little tighter. It may or may not be spelled out in your policy.

To protect yourself, always consult with your agent before making a claim.

If you make the claim directly with the insurance company, their adjuster is not likely to give you any warning about the possibility of non-renewal.

If you receive a notice of “non-renewal,” the first thing to do is try to get the insurer to reconsider, so the non-renewal doesn’t go on your insurance record. Whether or not you knew about the claim limits ahead of time, a non-renewal will follow you.

Like credit events, all paid insurance claims are recorded on a national register. This register is called C.L.U.E., and every insurance company sees this information when looking into writing new policies. Events generally stay on the C.L.U.E. report for five years.

NOTE: Like a credit report, the Fair Credit Act allows you to access the C.L.U.E. report once a year for free.

If your insurance company did not renew your policy, you will probably have to pay a higher premium at another insurance company.

If one or two insurers turn you down, don’t despair. Keep looking. If you’re buying a new home, ask the real estate agent, mortgage lender or builder for names of companies in your area. If it’s an existing home, find out from the previous owners who insured the house.

You may also want to consider carrying a higher deductible. This will save you money on your premium each month, as well as discourage you from filing small or “petty” claims that put you at greater risk.

If you think the reason for non-renewal is unfair or if you want a further explanation, be sure to call the insurance company’s Consumer Affairs division or your state’s insurance commission. After all, it never hurts to get a second opinion.