Home Insurance Laws
Homeowners buy homeowner's insurance to protect themselves against the costs associated with damage to the physical structure of their home and personal belongings inside the home. Homeowner insurance also covers the homeowner's liability in case anyone is injured in their home. Homeowner's insurance is regulated at the state level. Although there is no law mandating that homeowners have homeowner's insurance, most lenders require it.
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Types of Coverage Not Regulated by Law
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Homeowner insurance policies include specific perils, or conditions that can cause a loss. Perils not in the policy are not covered. There are no laws regarding what must be included in a homeowner's insurance policy, but the lender may require that certain perils be included.
Among the most common inclusions in policies are the dwelling and other structures, including fences, sheds, attached and freestanding garages, and guest houses. The most common policies also cover the value of the homeowner's possessions, loss of use for additional living expenses, and personal liability and medical payments that cover the costs of being sued.
Regulators
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Specific state laws regard homeowner's insurance, and each state has an entity that regulates how insurance companies and agents operate. State insurance regulators are responsible for the compliance and enforcement of state insurance laws.
State regulators approve the rates at which insurance companies can charge for homeowner's insurance and the conditions under which an insurance company can deny a homeowner insurance coverage or a renewal policy.
They also investigate consumer complaints and provide homeowners with information about insurance companies and agents that have consumer complaints lodged against them.
The National Association of Insurance Commissioners also helps regulate the industry.
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Insurer of Last Resort
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Insurance companies have the right, under state law, to deny homeowner's insurance if they perceive the property to be too risky, such as an oceanfront home, for instance. State regulators in coastal states have set up state-run programs to handle the insurance needs of homeowners who can't get insured through private agencies. The state-run insurance programs vary. Some cover all homeowner's insurance, some cover protection from hurricanes and some just cover wind damage.
Private Mortgage Insurance
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Homeowners who obtain loans for more than 80 percent of their home's value are required by most lenders to pay private mortgage insurance in addition to their regular homeowner's insurance. The Homeowner's Protection Act of 1998 requires lenders to provide disclosures and gives homeowners the right to request the lender to cancel the PMI once they pay down their mortgage to 80 percent of the purchase price or 80 percent of the appraisal price at the time it was purchased, whichever is lower. The act mandates that lenders automatically cancel PMI on loans that are current on payments when they reach 78 percent of the value or when they reach the midpoint of the loan period.
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References
- National Association of Insurance Commissioners: A Consumer's Guide to Home Insurance
- Federal Reserve Bank of San Francisco: Private Mortgage Insurance (PMI)
- Council of State Governments; Risky Business, State-backed Insurance of Last Resort on the Rise, but States Face Risks; Mikel Chavers; January 2008
- Photo Credit house image by kruszek from Fotolia.com
