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Homeowner's Insurance Hang-Ups

After paying out huge settlements to clean up mold damage, homeowner insurers pulled back from issuing new policies on homes where a water damage claim had been made within the last five years.

They also minimized their exposure to mold claims by excluding mold coverage altogether or limiting their coverage. Currently a common cap on such claims is $5,000, although this can vary from one company to the next.

Some insurers are less concerned about water damage claims today. However, they are concerned about the profile of the insured. Homeowner insurers want to insure people who don’t have a history of making claims. Some companies won’t write a new insurance policy for someone who made a claim within the last three years.

Insurer guidelines for coverage vary from company to company. And, individual companies’ policies change over time depending on their loss history and the marketplace. For example, some big homeowner insurers, like Allstate and State Farm, currently do not write policies for new customers in California.

However, they will write a new policy for someone who is already insured by the company. For example, let’s say your house is insured with State Farm. You sell it and buy another home in the area. At long as the house meets certain criteria, State Farm would probably write a homeowner’s policy for you on your new home.

HOUSE HUNTING TIP: More and more homeowners are selling first and renting for a time before buying their next home. In this case, if the homeowner is insured with a company that isn’t writing new business in your state, it would be prudent to carry renter’s insurance through this company. The company would then be likely to cover your next home because you have been a continuous client. For this strategy to work there can’t be a break in coverage.

Renters who have never owned a home and who are having trouble finding homeowner’s insurance should check with their renter’s insurance company. This company will often write a homeowner’s policy for an existing renter’s insurance customer.

If you made a claim within the last three years with your existing company and you buy another house, that company will probably insure you on the new home as long as coverage is continuous.

However, if you made two or more claims during the last three years, you could be denied coverage. Or, there might be a surcharge. This is usually determined on a case-by-case basis, with leeway given to long-term customers.

Even though you’re gold-plated in terms of insurability, an insurer might turn you down because of the property. For example, it can be difficult to insure older homes with some companies. Outdated plumbing, electrical, heating and roof are red flags. Some companies won’t insure houses with wood siding in fire-prone areas.

There is flexibility with some insurers who will insure a home with older wiring as long as the buyer agrees to upgrade the electrical within a month or so of closing.

When you’re shopping for homeowner’s insurance, make sure to compare like-kind coverage. Some companies will pay only 100 percent of the coverage amount in the case of a total loss. Others will pay 120 to 200 percent of the coverage amount.

Find out what’s excluded from coverage. With older homes, it’s a good idea to pay for a code upgrade rider. This doesn’t cost much when you consider what it would cost to upgrade an older home to meet current code requirements in case of a catastrophic loss.

THE CLOSING: Because it’s risky to make a lot of claims, consider increasing the deductible. This will reduce your annual insurance premiums.