High-Risk Homeowners Insurance: What to Know Before You Buy

If you live in a high-risk area, you may need to purchase a high-risk homeowners insurance plan. In some areas, like California wildfire zones, you may only be able to purchase a FAIR plan, which is a state-run insurance pool that is the last resort for insurance since most companies won’t insure in wildfire zones. Here’s what you need to know about high-risk homeowners insurance before you buy.  

Introduction to High-Risk Homeowners Insurance

High-risk homeowners insurance is a home insurance policy that is purchased for a home that is situated in a high-risk area or has certain underwriting characteristics that deem it too dangerous for a standard insurance company to insure it. High-risk areas are often natural disaster areas where things like wildfires, hurricanes, and floods are common. Other high-risk qualifications include older homes with outdated utilities or building code assessments, or someone with too many claims on their record.

Factors That Determine High-Risk Status

Let’s look at some factors that determine high-risk status.

Geographic Location

Where you live is often the single most important factor in determining if a home is a high-risk to insure. Insurance companies have zones that are sectioned off for natural disaster areas and high-crime areas. These two variables mean there is a higher chance that there will be not just a claim but a catastrophic claim. 

Home Condition and Age

If your home is quite old and hasn’t been updated in decades, you may not qualify for a standard homeowners insurance policy and may need high-risk homeowners insurance. The problem with older homes is that they might have old electrical or heating systems or may have an older roof in need of repair. These issues could eliminate you from standard underwriting of homes due to the likelihood of a claim. 

Personal Claims History

If you’ve had too many claims, you may find yourself in need of high-risk homeowners insurance. When a party has a history of claims, insurance companies find that there is a higher chance of filing more and bigger claims. This becomes an underwriting problem that the companies don’t want to deal with. 

Presence of Certain Features or Materials

If your home has certain features or was made with certain materials, it may not qualify for a standard homeowners insurance policy. For example, if the home is made up of materials that are thought to be more flammable, it could be considered high-risk. 

Understanding the Coverage Options

A high-risk homeowners insurance policy may not have the same coverage options as a standard policy. 

Standard vs. High-Risk Homeowners Insurance

Standard and high-risk homeowners insurance policies often cover the same types of perils, which include fire, theft, and water damage. However, a high-risk policy may be limited in the scope of coverage. For example, a FAIR plan might be limited to the total amount you can insure your dwelling for, leaving you underinsured in some cases. It is important to read through the policy exclusions and see what riders are available to you when you purchase high-risk homeowners insurance. You may not have the same number of riders available to you as you would in a standard policy.  

How to Shop for High-Risk Homeowners Insurance

If you’ve shopped for homeowners insurance and find that you cannot get a standard policy, you already know you need a high-risk homeowners insurance policy. Here’s how to shop for it. 

Assessing Your Home’s Risk Level

Determine what makes your home a high-risk home and see if you might qualify for policies with specialty insurers or if you are only eligible for something like the FAIR Plan, which is an insurance of last resort in California. 

Obtaining Multiple Quotes

When possible, obtain multiple quotes from various insurance companies or carriers. Check on the dwelling values and make sure you understand the exclusions of each quote to determine which offers the most comprehensive coverage. 

Comparing Policy Terms and Pricing

Look over quotes with a deliberate eye, looking for caps in coverage, high deductibles, and limited additional living expenses or personal belongings coverage. Note that a policy with fewer caps and exclusions will likely cost more but gives you more protection in the event of a loss. 

Tips to Reduce Your Insurance Risk and Premiums

In some cases, you can help your home qualify for a standard policy if you make certain improvements:

• Home safety improvement: Updated electrical systems and roofs can make a big difference in your ability to get a standard policy.
• Disaster preparedness measures: Talk to your insurance agent about what you can do to be prepared for a natural disaster. Your efforts can help in insurance costs and eligibility. 
• Improving credit scores: Some states allow insurance companies to use credit scores to help underwrite homeowners insurance. The better your score, the better your premium might be. 

The Claims Process for High-Risk Policies

Filing a claim may be overwhelming. Here’s what you can do to get through the process efficiently. 

Filing a Claim

Contact your insurance agent and inform them that you need to file a claim. You will be assigned a claims adjuster who assesses the damage and determines the coverage and value of the claim. 

Tips for a Smooth Process

Getting your own contractor’s quote for repairs and doing a home inventory with item values will help the adjuster with your claim. It also gives you ammunition to fight a low claim offer from the insurance company. 

Potential Challenges and How to Overcome Them

You may find challenges in the claims process. There may be caps on coverage, leaving you underinsured. Work with the adjuster and get your own quotes to get the maximum coverage you can.