A cancellation notice from your insurance company can make it feel like your largest investment is at risk. An unexpected increase in insurance costs can put a strain on your budget. Struggling to get the right amount and type of insurance can make your home harder to sell. Changes in the insurance industry across the country are making these problems more prevalent for homeowners.
In response to extreme weather events and natural disasters, some home insurance companies have gone out of business. In states like Florida and California, several insurers have stopped selling insurance. Other companies have raised prices to levels that homeowners can no longer afford. Homeowners are faced with new decisions about insurance, often without time to consider their options.
You choose the insurance, or your mortgage lender chooses it for you – at your expense
Your mortgage lender usually requires that your property be insured. If you stop paying your insurance premiums or let the policy lapse, the mortgage lender can buy insurance and charge you for it. This is called mandatory or lender-insured insurance.
Mandatory insurance usually protects only the borrower, not you. You may pay twice as much as you would regularly pay for insurance.
Under federal law, your mortgage servicer must give you at least 45 days’ notice before charging you for mandatory insurance.
How to stay ahead of high insurance costs
Your current insurance policy will show 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 buy another policy.
Even if your insurance company renews your policy, the cost will still go up – for some properties, it could be $100 per month or more. About a month before your renewal date, your insurance company will let you know what the next year’s costs will be.
Ask your insurance company to reconsider
When you receive notice that your insurance will not be renewed, call your insurance agent or the insurance company to ask why. Depending on the circumstances, the insurance company may be able to reverse their decision and renew your policy.
Shop around to find the right insurance
To avoid compulsory insurance, you need insurance that suits your property and any special requirements. For example, your mortgage may require you to buy a policy that covers specific risks, such as fire.
Typically, state insurance regulators approve which companies can offer insurance to homeowners in their state. To purchase insurance, contact your state’s insurance department and find out which companies operate in your area. Find information for your state through the National Association of Insurance Commissioners.
Choose insurance through your state’s FAIR program
Most U.S. states and the District of Columbia offer insurance programs called Fair Insurance Requirements (FAIR) plans or similar programs. FAIR plans provide coverage even in areas where insurance companies have decided not to sell policies. With FAIR plans, everyone can get basic protection against disasters. However, it is usually more expensive than a standard policy.
Notify your mortgage servicer
Once you have your own insurance, tell your mortgage servicer about changes to your insurance. Once you have your own insurance policy, you have the right to cancel compulsory insurance. See our guide on cancelling compulsory insurance.
Be prepared for change
Making home improvements, 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 reduce the risk of loss can also help, such as strengthening your roof or updating your plumbing, electrical or heating systems. Talk to your insurance agent or insurer about options that may be appropriate for your situation.
According to most forecasts, extreme weather events and the natural disasters they trigger are expected to intensify and spread to more areas of the country. Check out our tips for assessing climate risk, and you can fill out a disaster checklist to keep track of your important financial information.
The CFPB continues to work with policymakers to monitor the stability of the financial system and mortgage markets.
- Having issues with your mortgage servicer regarding mandatory insurance? You can file a complaint and we will send it to the mortgage company and work to find answers for you.
- Do you think your insurance was canceled in error and you’re not satisfied with the response from your insurance company or insurance agent? You can file a complaint with your state’s insurance department.
