How to Obtain Homeowners Insurance for High-Risk Homes

Getting homeowners insurance can be more challenging for those living in disaster-prone areas. For instance, Allstate and State Farm have stopped issuing new home policies in California due to the increase in floods and fires.

High-risk homeowners are more likely to be declined coverage by insurers, regardless of the reason for the claim.

Which insurance companies cover high-risk homes and homeowners, and what alternative programs are available if you cannot obtain a policy from other sources?

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What is high-risk homeowners insurance?

Insurance companies assess coverage based on claim risk, type, and costs, as well as the home's condition, location, owner's financial background, and claim history, according to the Insurance Information Institute (III).

Although some households may pose a greater risk, they can still obtain a policy, albeit with higher premiums and limited coverage. Besides traditional insurers, there are also state-run programs and alternative providers that can help fill the gap.

What makes a home high-risk?

Some of the factors that may make an insurer classify your property as high-risk include its location, age, and condition.

Location

Homes in areas prone to natural disasters or high-crime areas may increase the likelihood of repair-related claims or vandalism/theft.

High-risk features

While a swimming pool can enhance your property's appeal, it also poses a considerable risk of injury and potential legal claims. A homeowner could be held liable if a child trespasses onto their property and gets injured in the pool.

Older roof

An older or damaged roof poses a higher risk to the rest of your home.

Poor maintenance

Old electrical or heating systems can increase the risk of fire or water damage.

Vacant home

Using a vacation home infrequently could make it high-risk because there may not be someone on-site to detect leaks, fires, or break-ins.

What makes a homeowner high-risk?

Some common reasons property owners are considered a higher risk:

Low credit score

Your insurance score, like a credit score, is determined by your credit history. In many states, your credit score impacts the cost of your coverage or whether a company will issue you a policy. However, some states, including California, Maryland, Massachusetts, Michigan, and Oregon, limit the use of credit scores in determining approval or rates.

Prior claims history

If you have a history of filing numerous claims, you may face challenges in obtaining coverage or pay higher premiums. Insurers examine CLUE reports, which contain information about your claims history for the past seven years.

Pets

According to the III, some dog breeds, including rottweilers and pit bulls, are considered higher risk, as are exotic animals and pets with a history of aggression.

Home businesses

If you work from home and entertain clients, there is a higher chance of an accident occurring.

How to get homeowners insurance if you're high-risk

If you own a high-risk property and have been rejected or nonrenewed by insurers, don't give up. Try at least three more carriers to find coverage.

Foremost, a subsidiary of Farmers Insurance Group, specializes in high liability limits for specialty homes and may consider homeowners with a low credit score. In certain states, policyholders can receive up to 150% of the insured amount in the event of a total loss due to a covered peril.

AIG offers customized insurance coverage for high-value or historic properties, with most states requiring a minimum home value of $750,000. In areas prone to natural disasters such as wildfires or hurricanes, AIG provides free disaster mitigation and architectural services that could be beneficial.

American Family provides customized vacant-home policies for those buying, selling, or renovating, with options for 3, 6, and 12-month increments. You can also add coverage for attached structures and possessions, such as lawnmowers and snowblowers.

FAIR Plans

If you've been rejected by the traditional insurance marketplace, many states offer Fair Access to Insurance Requirements (FAIR) Plans, also known as insurers of last resort. Unlike a single carrier, your policy is backed by a group of participating insurers, which reduces their individual risk. If you have a FAIR Plan and file a claim, all insurers in the pool will contribute to the benefit payment.

III states that all FAIR Plans cover fire, vandalism, riots, and windstorms, but other coverage varies by state. These policies are typically more expensive than those on the voluntary market and may cover less. Additionally, in order to qualify for coverage, you may need to repair your roof or upgrade your electrical, HVAC, or plumbing systems.

To determine if your state offers a FAIR plan, contact your state's insurance department. To be eligible, you must demonstrate that you have been rejected by multiple carriers.

Surplus lines insurance

In order to insure homes that traditional carriers cannot or will not, many states permit insurance companies that are not licensed within their borders to issue policies. Nevertheless, the surplus lines provider must still be licensed in its home state or country.

An individual who has received three to five rejections from conventional insurance providers may be eligible for surplus lines insurance, which is also referred to as excess lines insurance. These policies often feature higher deductibles and more exclusions.

Check with your state's insurance department to see what options are available.

Bottom line

A home or homeowner may be deemed high-risk due to factors such as severe weather, maintenance problems, poor credit, and the type of pet they own. If denied, inquire about the reason and attempt to resolve the issue. If traditional insurers consistently reject coverage, consider options through a FAIR Plan or surplus lines carrier.

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