My homeowners insurance was recently cancelled due to our area being deemed wildfire risk. Brokers have told me many companies are pulling out of our state, Colorado, and I’ve been told this is a new development for our area. I may have found coverage but am left with some questions:
What will happen when homebuyers to the area run up against the challenge of insuring a new home - are underwriters leery of writing mortgages for these areas knowing insurance may be difficult to keep? and what happens if insurance is no longer available and there’s a mortgage on the property?
Fortunately, I no longer have a mortgage but am genuinely curious how this may affect our (and other) markets.
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The lender will be notified when the insurance policy terminates. They will then send a letter to the owner that they have X days to get a new policy, otherwise the lender will sign up for “force placed” insurance (at a very high cost) and the owner will have to pay for it until they get a normal insurance policy again.
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Exactly. Another thing to keep in mind is that the mortgage company will backdate the insurance to make sure there aren’t any gaps in coverage. Even if you get new coverage, those days when you didn’t have insurance are still a risk. Your mortgage company works with an insurance company that does this, which is one reason why the coverage can be pricey.
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Forced placed insurance also usually only protects the bank’s interest in the property - namely, the structure. It usually doesn’t cover personal belongings or liability. Sometimes it won’t even cover appliances, flooring, or the like.
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Interestingly enough it turns out my home owner policy protected the contents of my truck when someone broke into my truck and stole my laptop. A nice perk I didn’t know I had.
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California had to fund state-sponsored insurance for people who can no longer get normal coverage. It’s not great insurance and it’s not cheap but it’s at least something. I would imagine other states will do this if insurance companies continue to pull out of areas.
It may end up reducing prices, but there’s still so much demand in these areas that it may not. I think buyers see this through rose colored glasses and figure the odds of a problem are low.
The worst case scenario is that you get stuck in a house that isn’t worth what you paid. Make sure you will be truly happy in a location for a long time before you buy, if you are considering a high-risk area.
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Okay, so insurance companies are getting nervous about climate change. They’re saying, “Hey, it’s getting riskier out there, we gotta make sure we’re not gonna lose all our money!” So they’re backing out of areas that are more likely to be hit by floods, wildfires, or other disasters.
People are saying, “Well, maybe we should have a public, non-profit insurance company!” But that’s not a magic bullet either. It’ll still be expensive, and if a huge disaster happens, we might end up dipping into taxpayer money. That’s bad news for states, since they don’t have a bottomless piggy bank like the feds.
In California, there’s a thing called the California Earthquake Authority. They’re kind of like the public option for earthquake insurance. But here’s the catch: if the Big One hits and they run out of money, they’re basically saying, “Sorry, no more coverage for you!”
So, it’s a tough situation. We need to find a way to protect ourselves from climate change disasters, but it’s not easy.
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