What Issues Can Kill Home Insurance?

Homeowners need sufficient home insurance coverage to comply with lender requirements if a mortgage is on the property. Certain high-risk areas of the country are not part of the standard insurance market because of the extreme risk of naturally disasters, especially hurricanes. Over the years, home insurance providers have determined there are certain obvious risk factors that are too expensive to cover in the standard home insurance policy. Failure to comply with requirements stated in the policy documentation can result in cancellation of the policy.

These five situations can cause an insurance provider to drop a homeowner’s policy.

1. Certain dogs – Homeowner’s insurance providers know that one third of all liability claims are for dog bites. Insurers paid $412 million in liability claims in 2009 to people who were bitten by dogs belonging to homeowners. Certain breeds of dogs have been identified as “high risk” because of the statistics that support the concern. Any dog that is on the U.S. Centers for Disease Control and Prevention’s list of deadly breeds will cause the insurance company to deny a home insurance policy application. A dog with a history of biting can cause a home insurance provider to drop the insurance coverage. Following a claim against the liability coverage, other insurance companies can refuse to underwrite a home insurance policy until the dog is removed from the premises.

2. Knob and tube wiring – Between the 1880s and the 1930s, this method of wiring a house was common. Modern appliances place extreme strain on an old wiring system in the home. Risk of fire is extreme if the wiring system is not updated to comply with the most recent wiring code for the location. Fuses will “blow” to prevent overheating in the walls of the home. Sometimes people rig the fuse box to prevent this safety feature from operating properly. House fires are common in these situations, and the expense for the insurance company is considered unacceptable.

3. Prior claims/dropped policy – A database of all claims against renters and homeowner’s insurance is kept by the insurance industry. Actual statistics reveal that 70 percent of all policyholders never experience a loss. Home insurance providers will underwrite those people who are considered in the “low-risk” majority. Homeowners must find a new insurance provider before allowing the existing policy to lapse, even if a move is involved. New policyholders are held to different standards than existing homeowners. Minor claims are viewed differently when the policyholder has been a customer for many years. A catastrophic loss will eliminate the chances of finding standard home insurance coverage.

4. Unrelated residents – Multiple people, who are not related, living in one house is viewed as a “non-standard” risk by insurance providers. Risks of theft and fire increase dramatically since no one accepts responsibility for ensuring doors are locked and appliances are turned off. Increased foot traffic poses risks that single-family dwellings rarely encounter. Home insurance providers know that certain activities are present in these situations. The increased risk is considered uninsurable.

5. Obvious lack of pride of ownership – Appearance of the exterior of the house is important to insurance companies. Property that is allowed to deteriorate on the outside loses its value and becomes a fire trap. Peeling paint, missing gutters and a roof needing repair are indications of interior issues as well. Home insurance companies can require the homeowner to spend substantial sums of money to perform necessary repairs. Those who choose not to comply will lose their home insurance coverage at the insurer’s discretion. Risk of fire is the primary concern, but increased risk of injury to third parties plays a key role in the decision, too.

Homeowners are wise to weigh every possible insurance claim against the actual cost of paying for a repair out-of-pocket. Significant losses require claims against the policy, but the homeowner must be aware of the ability to acquire insurance later. Some insurance providers will cancel a policy following the payment of a large claim. After this occurs, there are government-sponsored programs for the homeowner to acquire home insurance. These policies will cost more and provide less coverage. Catastrophic home insurance is another possibility for the homeowner who must have insurance in order to qualify for a mortgage.

Population density causes increased claims as natural disasters impact larger portions of the U.S. each year. Entire towns have been destroyed, and the insurance companies have incurred significant losses in the effort to pay claims. Homeowners must be aware that these disasters raise insurance rates for everyone. Eliminating risk is essential for the insurance companies to survive.

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