Insurance companies aren’t stupid. They aren’t going to insure just any homeowner and any home.
Just like any business, insurers need to make smart choices about where they invest their money, time, and attention. This means they aren’t going to sell you a homeowners insurance policy if they don’t think that you — and the home you seek to insure — are a sound investment.
That’s why insurers have established criteria to help them determine whether homeowners and homes are eligible for homeowners insurance. Though exact criteria vary from carrier to carrier, most insurers consider the same factors in making their decisions.
As you go through the process of purchasing a new policy or renewing an existing policy, it’s helpful to understand these criteria. After all, as a smart, savvy homeowner, you know you need homeowners insurance. By educating yourself about potential obstacles, you can know better what to expect, what to avoid, and how you can fix or mitigate common concerns. Read on as Covered explains the factors insurers consider your eligibility for homeowners insurance.
Do you have a history of making excessive claims as a homeowner? Alternatively, did the prior owner of your home submit an excessive number of claims? Either way, insurance companies may be less likely to provide you with a new homeowners insurance policy.
A history of frequent claims makes you look like a high-risk customer. A history of frequent claims on your home — even if you didn’t make them — makes your home look like a high-risk investment.
Your Insurance Score
Do you have bad — or at least questionable — credit? Since credit history is used to compute insurance scores, a poor credit history may lead to a poor insurance score. And a poor insurance score could cause insurers to deem you ineligible for coverage.
In the eyes of insurers, your insurance score indicates your projected likelihood of filing a claim. Studies cited by the Insurance Information Institute have shown that the way someone manages their finances is a good indicator of their insurance claims. Simply put, people with poor insurance scores are statistically more likely to file claims.
Was your home built with sub-par materials that may not stand up to wind, water, or earthquake damage? If yes, you may be out of luck on a homeowners insurance policy, or you may qualify only for a different type of policy.
Some insurers won’t cover types of construction that are unlikely to stand up to the elements. For example, certain types of condominiums, manufactured homes (e.g., modular homes), and trailer homes may not be eligible. Though exact guidelines vary between insurers, they’ll consider the age, condition, foundation type, and frame type of your home when making their assessment of eligibility. Failure to maintain, repair, or replace the roof, HVAC systems, plumbing, and wiring may also result in a declination.
Location, Location, Location
Do you live in an area prone to landslides, hurricanes, flooding, earthquakes, wildfires, or other natural disasters? Or in a rural area that’s located far, far away from a fire hydrant or a fire station? Or in a neighborhood that’s considered a high-crime area? Your home’s location can weigh heavily in insurers’ decisions about which types of homeowners insurance coverage you qualify for.
When insurance companies evaluate the risks of providing you with coverage, location matters. Some insurance companies no longer do business in certain high-risk states. At minimum, your location could trigger higher rates or the need for specific exclusions, endorsements, or separate policies.
Does your home have internal or external hazards that insurers may view as high-risk? As you look around your home and its environs, consider fire hazards, physical hazards, or other things that could cause damage to your home or its occupants.
Most insurance companies will perform a home inspection, either prior to offering a quote or after the policy has been issued. Depending on the severity of the risk posed by the hazard, they may consider denying you coverage or at the very least increasing your rates. Example hazards include:
- A roof in bad condition
- A tree too close to your home
- An excessive number of items being housed inside or outside your home (ever watched Hoarders?)
- A woodstove
- A cracked or crumbling foundation
- Broken windows
- Electrical or plumbing systems that aren’t in good working order
- A trampoline (yes, we agree they’re a ton of fun; no, we simply can’t recommend having one on your property)
Do you have pets that increase your liability? Housing certain pets may increase your rates or even lead you to being denied coverage.
It probably won’t surprise you to hear that most insurers won’t cover exotic pets like primates, poisonous snakes, big cats, or crocodiles without either special endorsements or separate policies. It may surprise you to know that certain dog breeds are considered high-risk by insurers. While Pit Bulls, Rottweilers, Dobermans, and wolf-dog hybrids are commonly known as potential offenders, breeds like German Shepherds, Boxers, Chow Chows, Siberian Huskies, Great Danes, and Akitas are also eyed warily.
Regardless of how sweet and harmless you consider your pooch to be, it’s important to understand that dog bites are a big deal for insurers. According to the Insurance Information Institute, homeowners insurance providers paid out more than $686M in liability claims related to dog bites in 2017 alone.
It also matters to insurers what type of home you’re covering, and the nature of your ownership and living arrangements. Your property may be eligible for homeowners insurance if it fits one of these categories:
- Owner-occupied – You own the home. You also live there.
- Life estate – Either:
- You own a property because a temporary ownership agreement — a “life estate” — grants you ownership that expires when you die. After that, the estate is transferred to the owners (legally referred to as “remaindermen”) named in the life estate agreement.
- You are one of the remaindermen named in the agreement. You maintain homeowners insurance to cover your interest in the property.
- Contract of sale, or land contract – You live in a home. You don’t own the home, but you’re under contract to purchase it from its owner. You’re making regular payments for that purpose.
- Dwelling owned by a trust – You live in a home that is owned by a trust of which you are a designated trustee.
- Multi-family dwelling (no more than four families) – Either:
- You own a two-family dwelling. You live in one of the units.
- You own a three- or four-family dwelling. You live in one of the units. (Note that, for this arrangement, the type of homeowners policy for which you are eligible varies by state.)
- You are co-owner of a multi-family dwelling. You live in one unit. Your co-owner lives in another unit.
- If you are the “named insured,” your homeowners insurance policy should carry the “Additional Insured — Residence Premises” endorsement to protect the other owner’s interests in the dwelling.
- If your co-owner is the “named insured,” make sure that their policy includes the “Additional Insured — Residence Premises” to protect your interests.
- Townhouse, condominiums, and co-ops – You own a townhome or a unit in a condominium or a co-op.
So with all that said, what type of homes aren’t eligible?
- Modular or trailer homes – As mentioned earlier, these types of dwellings frequently don’t meet insurance companies’ standards for quality construction. Talk to your agent about your specific situation.
- Condominiums – For these dwellings, a condo policy (HO6) is usually a more appropriate insurance product than a homeowners policy.
- Dwellings with a capacity of more than four families – These dwellings must be insured on a commercial policy.
- Dwellings that you rent from the owner – A renters insurance policy (HO4) is the appropriate insurance product for this scenario.
Whether you’re a new or existing homeowner, having a strong grasp on the criteria used to determine your eligibility for coverage will make you better equipped to negotiate your policy terms. Ask your independent agent the right questions to help you understand the factors unique to your situation. That way, neither you nor your insurance company have any reason to feel stupid.
Have more questions about your eligibility for homeowners insurance? Covered’s independent agents are here to help. Give us a call at (303) 302-9927 or send us a message.