Monday, April 4, 2016

How to Insure Your Hard-to-Insure Home

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iStock_000000693942XSmallIf you are the lucky owner of a home that isn’t easily insured, fret not, as solutions are out there that just might do the trick. As the proud owner of a hard-to-insure home, I can assure you that you are definitely not alone in this world. In fact, many folks find themselves in your position with dealing with their home insurance. It’s not uncommon for homes in areas that are prone to natural disasters or other risks to encounter difficulty in sourcing insurance. On the other hand, many of these homes are quite desirable and the extra effort is definitely worth it for the upside of living in a great place.


The most common reason that you might find yourself regularly being turned down by prospective home insurers is your home’s location. For example, I have a few friends who own fancy homes in the Hollywood Hills (you know, where all the movie stars live) that have quite a tough time with home insurance. The hills in Southern California are prone to fire danger due to the constant dry weather and seasonal winds blowing in from the desert. If you think earthquakes and paparazzi are bad, try living through the Santa Ana winds each fall! These homes in the hills are particularly vulnerable due to all the dry brush and their poor road access, which means the fire department cannot always reach them in a timely fashion to fight the fires. As a result, many of these homeowners are unable to purchase home insurance through the traditional insurance market.


Fortunately, there is such a thing as the Fair Access to Insurance Requirements, aka FAIR plan, run by each state’s department of insurance. The insurance companies doing business in your state band together to offer insurance to individual homeowners that would otherwise be turned down for coverage. The state coordinates this and ensures that the distribution of risk is fairly and evenly apportioned across the various insurance companies, avoiding adverse selection. In the world of insurance, adverse selection is a phenomenon when poor risks somehow end up going to one insurance company in a disproportionate fashion. It’s important for insurance companies to avoid this as they base their business off a diversification of risk.


The idea of the FAIR plan and adverse selection brings up an important aspect of the program, which is its role as the insurer of last resort. As a result, you cannot simply assume your home is difficult to insure and, instead of making efforts to find coverage, call up the fine folks at the FAIR plan and expect them to find coverage for you. One of the requirements is that you should have exhausted the options for traditional insurance before approaching the FAIR plan. In most cases, they will ask you to provide evidence that you’ve made good faith efforts to find insurance and were turned down.


Because the states and not the federal government regulate insurance, you will need to contact your respective state’s department of insurance to inquire about accessing coverage. The National Association of Insurance Commissioners website provides a good map that you can use as a reference to link your state’s department of insurance.


When looking for home insurance, don’t despair if a few companies turn you down. Help is out there, but it does require you to take the initiative to access it.






How to Insure Your Hard-to-Insure Home

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