The last few days I've gone into some detail about homeowners insurance. I've covered the basics of what homeowners insurance is in a previous blog, as well as different coverage options. Today I want to talk about the actual contract.
Most people don't think of insurance as a contract, instead as a policy which you pay for. An insurance policy is in fact a legal contract; both you and the insurance company have responsibilities under the contract. For example:
- You make good faith efforts to be honest with the insurance company about what you may have lost in a policy claim
- You make good faith efforts when getting a policy that you intend to pay the premiums
- The insurance company makes good faith efforts to pay on policy claims
- The insurance company makes good faith efforts to keep your premiums low
Essentially what it boils down to is, both you and your insurance company are expected to be honest.
So when does the coverage begin? The first step is to fill out the application for the policy you wish to get. This will assist the insurance company in assessing the risk associated with your policy, and ultimately if they want to accept or deny insurance to you. During the process, the insurance company will often issue a binder. The binder is typically a few pages, which briefly explains your protection (effective immediately) for a temporary period of time. This coverage is guaranteed, and is immediately. It typically is for the insurance company to process your application completely and decide whether to accept or deny your application, but to not leave you without some form of coverage. This is very helpful for providing this to a lending institution to prove you have some form of coverage. If the insurance company opts to not provide you coverage, you will be covered for the duration of the binder period, and should start looking around for another company to provide coverage before the binder date runs out.
Nothing requires the insurance company to renew your policy. Keep this in mind, because it could be a problem. The insurance company also reserves the right to cancel your policy during the first 59 days after it's been issued for any reason it sees fit. This only applies to new policies, and not renewals. This period is set in place so the company can evaluate the risk involved in your policy. After the 59 day period, the insurance company is unable to cancel your policy unless one of the following applies:
- The risk involved has increased substantially from when you first applied for your homeowners insurance. Don't fear, in Vermont this form of cancelation is subject to approval by the Vermont Insurance Division. Assuming they decide to approve the cancelation, you still get a 15 day notice.
- Any fraud on a claim, or violation of any condition in your policy. Let's face it, if you lie to try and get more money for something, it's fraud. They're going to cancel your policy! For our dishonest few, even then you will usually get a 45 day notice prior to the cancelation, but it's not recommended nor endorsed to commit fraud.
- Any fraud on the application. Again, if you lie on your application, that is fraud. People have many reasons to be dishonest, and money is a big one. If you are caught, it's only fair the insurance company doesn't continue to cover you.
- The most common reason is non-payment of your premium. The insurance company is required to issue you a 15 day notice prior to canceling your policy. If you pay within that period of time, you will not forfeit your policy.
Some caveats to consider:
- The insurance company will not provide liability coverage for any person who intentionally causes loss resulting in a claim. (this is insurance fraud) If you burn down your house, and they know you did, unfortunately, the check will have a bunch of zeros on it without any other numbers.
- If you are negligent in your responsibilities to make reasonable efforts to protect your property and dwelling from loss resulting in a claim, this too could cause the insurance company to not pay on a claim. Examples are things like going on vacation in the winter and not protecting your plumbing, resulting in plumbing damage. If you come back to frozen pipes which cause damage, but didn't make a reasonable effort to prevent this (draining the pipes), you will probably be denied.
Insurance in a big deal, and never simple. But hopefully these articles have provided some insight into homeowners insurance.