Can a homeowners insurance company drop you?

A homeowners insurance company can drop you, but only for specific reasons that are outlined in state insurance laws.

Although many people associated a cancellation with the immediate end of the policy, insurance companies can’t drop you without warning.

In fact, there are two different ways an insurance company can drop a homeowners policy, and while it can happen mid-term, there is no situation where you won’t be given time to resolve the problem or find new coverage.

Why would a home insurance company drop you?

Insurers can cancel or refuse to renew policies if they have a legitimate business reason to do so, according to Jeff Raizner, partner at Raizner Slania, a Houston-based law firm that specializes in insurance litigation.

The legal reasons for an insurer to drop you vary slightly by state, and there are only a few reasons that an insurance company can cancel your policy in the middle of the term. They are generally limited to:

• Non-payment of premiums
• Misrepresentation on your application
• Fraud

A non-renewal, in which an insurance company decides not to renew the policy at the end of the current term, can happen for several other reasons, including:

• A major drop in your credit score
• An increase in risk in your area
• Changes to your home that increase the risk of insuring you
• Poor maintenance or failure to complete repairs on the home
• Multiple claims filed in a short period of time
• The company is leaving your area

Reasons your home insurance can be canceled or non-renewed

Before we explain in more detail the reasons your home insurance company can drop you, it’s important to understand the difference between a cancellation and a non-renewal.

A cancellation happens in the middle of the policy term, but still requires notice, the length of which depends on the reason.

A non-renewal happens at the end of the policy term, and usually comes with more notice. It means that when your policy term is up, the insurance company will not renew the coverage.

Reasons for homeowners insurance cancellation

There are only a few reasons a home insurance company can cancel your policy effective before the end of the policy term.

Missed payments

If you haven’t paid your premiums, your insurance company can send you a notice of cancellation. The notice period is most commonly 10 days, but it depends on the laws in your state. You will have time to make the missed payment before your coverage is canceled.4

Misrepresentation

On your application for home insurance, you provide a lot of details about the home and your insurance company decides whether or not you qualify for coverage based on that information. If you provide information that isn’t accurate, and the insurance company would have denied you coverage had it received accurate information, it can cancel the policy.

Fraud

While fraud is similar to misrepresentation in that inaccurate information is provided, it is more serious and involves an intentional attempt to defraud an insurance company. Filing a false claim, for example, is fraud and can result in your policy being canceled.

Reasons for homeowners insurance non-renewal

A non-renewal can happen for a broader list of reasons, and happens at renewal time. Here’s a closer look at some of the reasons for non-renewal.

Bad credit

In most states, a homeowners insurance company can check your credit before it issues you a policy. Although your credit won’t be the only factor the company considers, it can be an important one. In states that use credit-based insurance scoring, your credit score is one way the insurance company assesses your risk. Insurers’ historical data shows that policyholders with poor credit are more likely to file claims, making them a higher risk.

If your credit score drops, it could be a reason for non-renewal, although in some states it can’t be the only reason.

Increased risk in your area

Natural disasters, such as wildfires and hurricanes, make it more difficult for an insurance company to operate profitably. An insurance company can make a business decision to stop offering coverage in a particular state or area based on the increased risks. For homeowners in that state, the move may mean non-renewed policies. 

For example, insurance companies in California increased non-renewals of policies in wildfire-prone areas.

The risks at your home have changed

Beyond the risks of a natural disaster in your area, the insurance company will take your individual risks into consideration. A few high-risk activities include getting an aggressive dog breed or installing a pool

Lack of maintenance or failure to repair

Your insurance contract requires you to keep your home in a state of good repair and complete any required maintenance to prevent claims. If your home is in a state of disrepair or you haven’t properly maintained it, the insurance company may non-renew your policy.

You’ve filed too many claims

If you have an extensive history of filing claims, an insurance company may decide to stop working with you. Unfortunately, your history of claims can be seen as a risk that is bigger than the company is willing to take.

The insurance company leaves your area or goes out of business

After many years of heavy losses, insurance companies are either leaving high-risk areas or even going under. This is a common problem in Florida, where hurricanes have left insurance companies unable to continue operations or unwilling to provide policies in the state at all.

What to do if your home insurance company drops you

As a homeowner, it can come as a surprise to discover that your insurance company has decided to part ways with you. There are a few steps to take when you get a cancellation or non-renewal notice.

1. Contact the insurance company. Before you do anything else, call your agent or company to find out if there’s anything you can do to reverse the decision. If you’ve missed a payment or need to make a repair, the issue can likely be resolved with quick action.
2. Start shopping for new insurance. Even if you’re trying to resolve the issue, start getting quotes for new coverage right away.
3. Make repairs right away. Even if you can’t convince your current insurance company to reverse its decision, most insurance companies will want to see repairs done. If lack of maintenance or repairs are the issue, take care of it either way.
4. Reach out for help. If you feel your policy has been canceled unfairly, reach out to your state’s insurance department for help, or contact a lawyer.

Can an insurance company drop your homeowners insurance policy after a claim?

“The most important point for consumers to understand is that their policies cannot be canceled in retaliation for filing a claim. It’s a fine line to draw because they can cancel for a poor claims history over multiple claims and they can cancel for reasons such as the home being too damaged to insure, but it is illegal to cancel for pure retaliation for filing a claim and consumers need to be aware of that,” says Raizner.

If you have filed a claim and were dropped during the claims process or immediately afterward, speak with your agent to ask about the reason. If you feel it was in retaliation, contact your state insurance department to file a dispute, if needed.

It’s important to note that insurance companies can non-renew a policy if there have been multiple claims in a short period.

How to get homeowners insurance after being dropped

If your insurance company is cancelling or non-renewing your policy, it may be more difficult to find a new policy. Insurance companies will see you as a higher risk if another company has decided not to insure you any longer.

If you’re having trouble finding coverage after your policy has been canceled, seek out the help of a local insurance agent who knows the market and can help you find a new policy.

There is a final option. If you can’t find a company that will insure your home, your state’s Fair Access to Insurance Requirements (FAIR) plan can help. Most, but not all, have a FAIR plan.

The FAIR plan should serve as a last resort, but will provide coverage if you can’t find it anywhere else.

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