Is my home considered “high risk”?
In the late 1960’s, the government set up the Fair Access to Insurance Requirements (FAIR) program. These plans are operated by the insurance industry and must make homeowners insurance available to people that fall into the “high risk” category.
Is your home sitting in the middle of a flood zone, on a fault line or in the middle of tornado alley? If so you may be looking at a hefty home insurance bill because your home will be considered high-risk.
High-risk homes come in all shapes and sizes and the risk factors vary depending on what part of the country you call home. What doesn’t vary between high-risk homes is the high cost of homeowners insurance. If your home is considered non-standard you can expect a much higher premium than a similar house in a non-risk zone and in certain situations you may not be able to get coverage at all.
What makes me high-risk?
There are a number of factors that can put your home into a high-risk category. While the most common risk factor tends to be flooding and other weather related issues, simply filing more than one claim every few years can result in a high-risk label being attached to your property. Here are a few of the most common factors that will push you into a high-risk category:
Natural Disasters – While windstorms are covered by most standard policies, earthquakes and floods are not a covered peril. If you live in an earthquake prone state or a flood zone, expect your home to be labeled high-risk. Earthquake protection is offered at an additional cost as is flood insurance.
Flood zone maps are available online or if you are interested in buying a house but are not sure if it falls in a flood zone, ask your realtor or insurance agent if the home will be considered high-risk. Always get a homeowners insurance quote before buying a house, you don’t want to find the home of your dreams and then discover you cannot afford to insure it.
Even though windstorms are a covered peril, in certain states that are prone to hurricanes and tornados windstorm damage may be an add-on or subject to much higher deductibles than other perils. Carefully read your policy for exclusions or higher deductibles.
Living in a location that carries a high risk of brush fires can also lead to a high-risk policy. This is especially true for mountain homes or houses built in or near the woods. In most cases, these types of homes will be labeled high-risk and carry a more expensive premium.
Crime – Living in a high crime area will often result in a higher premium and a high-risk label. Check crime stats before deciding on a neighborhood and always buy a house in the best neighborhood you can afford.
Numerous Claims – It may seem unfair but most insurers will raise your rates every time you make a claim. Filing multiple claims in a year or two will often lead to a high-risk category and higher premiums. In some cases your insurer may simply drop you as a customer. Experts recommend paying small claims out of pocket and saving your insurance for big catastrophic claims.
Poor Credit – Again, it may seem unfair but your past can certainly affect your homeowners insurance. A dismal credit rating, criminal convictions and being dropped by another insurer can lead to high-risk insurance.
Dated Internal Systems – If your plumbing or electrical system is old, not up to code or found to be sub-par you may find it hard to get homeowners insurance. Insurers will label your home high-risk and insurance will be much more expensive, if you can get it at all.
What can I do?
If you have been labeled high risk, or denied coverage by more than one insurer you will need to know what it is that the insurers don’t like about you or your home. The Comprehensive Loss Underwriting Exchange, or Clue is a centralized database used by insurers to track claims. Insurers use your CLUE report to gauge the risk that you present.
Consumers can get a free copy of their CLUE report from Choicepoint. The report can help you determine what problem is keeping you from getting standard insurance and if there is anything you can do to rectify the situation.
Once you have determined the issue, work to fix it. While moving your property away from the waterfront, earthquake zone or fire zone is not practical it is certainly possible to fix other issues.
If it is something with the house, get it repaired as soon as possible and check with your insurer if your upgrades will get your home removed from the high-risk list. If your credit report is the issue, do your best to improve it. As we mentioned before, absorb the costs of small house issues and save your insurance for catastrophic events.
FAIR Plans
In the late 1960’s, the government set up the Fair Access to Insurance Requirements (FAIR) program. These plans are operated by the insurance industry and must make homeowners insurance available to people that fall into the “high risk” category.
In most cases these plans offer less coverage and cost more than a normal policy but if they are the only option available they can be a lifesaver if a catastrophic event occurs. FAIR plans will often require a much higher deductible so make sure you understand all of the policy requirements and can afford the deductible should a major event occur.
A local insurance agent can help you to determine if you meet the qualifications of a FAIR plan. Not all states offer FAIR plans so check with a local agent or your state Insurance Department to see what is available.
There are also private insurers that specialize in high-risk customers. Expect to pay much more than a normal policy. Shopping for home insurance online is the best way to find an affordable high-risk policy.
For additional questions about “high risk” areas, please visit choose your state below for more information and the best way to contact an agent in your area.