Receiving a notice from your insurance company that your policy is being cancelled can make you feel like your largest investment is at risk. An unexpected increase in insurance costs can affect your personal budget. And difficulty finding the right amount and type of coverage can make your home difficult to sell. Changes in the country’s insurance industry have made these problems common for homeowners.
Many home insurance companies are on the verge of bankruptcy due to extreme weather and natural disasters. In states such as Florida and California, multiple insurance companies have stopped selling insurance. Other companies have raised insurance prices to levels that homeowners cannot afford. Homeowners must make new decisions about their insurance, often without enough time to evaluate their options.
If you don’t choose insurance, your mortgage lender will, and you’ll be required to pay for it.
Your mortgage lender will usually require you to insure your property. If you stop paying your insurance or the policy lapses, the lender has the right to insure it and charge you for it. This is called “compulsory insurance” or “lender’s insurance”.
Mandatory insurance usually protects only the borrower, not you. You will pay at least twice as much as the insurance you choose.
Under federal law, your mortgage servicer must give you at least 45 days’ notice before charging mandatory insurance fees.
How to stay ahead of high insurance costs
Your current insurance policy has a renewal date. If the insurance company decides not to renew your policy, they must notify you one to three months before the renewal date. This gives you time to purchase another insurance policy.
Even if the insurance company renews the policy, some properties may have higher costs, which could be $100 or more per month. The insurance company should provide you with the next year’s premium about a month before the renewal date.
Ask the insurance company to reconsider the renewal
Once you receive notice that your insurance will not be renewed, call your insurance agent or insurance company immediately and ask why. Depending on your situation, the insurance company may change its decision and renew your policy.
Find the best insurance for you
To avoid mandatory insurance, you need coverage that matches any unique characteristics of you or your property. For example, your mortgage may require you to buy a policy that covers specific risks, such as fire.
Typically, state regulators approve which companies can offer insurance to homeowners in their state. To find insurance policies, contact your state’s insurance policy department, and they will tell you which companies operate in your area. Check the National Association of Insurance Commissioners website for information for your state of residence (in English, you can translate by selecting Spanish in the lower right corner).
Choose insurance using your state’s FAIR plan
Most states and the District of Columbia offer a program called the Fair Access to Insurance Needs Program, or FAIR, for Fair Access to Insurance Needs Program. FAIR plans provide coverage even in areas where insurance companies have decided not to sell policies. With a FAIR plan, anyone can get basic protection against disasters. However, these plans usually cost more than standard policies.
Notify your mortgage servicer
Once you have purchased your own insurance, notify your mortgage servicer of any changes to your insurance. Once you have your own policy, you have the right to cancel mandatory insurance. View our guide to cancelling mandatory insurance.
Be prepared for change
Making improvements to your home, such as installing a fire alarm or security system, can increase the likelihood that your insurance company will renew your policy. It can also reduce costs. Other home improvements that can reduce your risk of loss include repairing your roof or updating your plumbing, electrical or heating systems. Ask your insurance agent or insurer what your options are based on your situation.
Most forecasts predict that extreme weather events and the natural disasters they cause will intensify and spread to other parts of the country. Check out our tips for assessing weather risk, or complete our disaster preparedness checklist so you can stay on top of the most important financial information.
At the Consumer Financial Protection Bureau, we continue to work with policymakers while remaining vigilant about the stability of the financial system and mortgage markets.
- Do you have a problem with your mortgage servicer regarding mandatory insurance? You can send us your complaint and we will forward it to the mortgage company and work to find an answer for you.
- Do you think your insurance was canceled in error and you’re not happy with what the insurance company or agent said? You can send a complaint to the insurance department in your state of residence (in English, you can translate it by selecting Spanish in the lower right corner).
