Dropped by Your Home Insurer? You Need to Take These Steps Now

"I can't impress upon you the stress the board was under," said a member of a small homeowners association (HOA) in Boca Raton, Florida. By law, their HOA has to have insurance, but they couldn't find another policy after receiving a non-renewal notice. Eventually, Citizens -- the insurer of last resort in Florida -- said the community had to add new roofs and meet various other conditions before they'd approve the policy.

"They kept giving us deadlines, and we were always under the gun to meet their deadlines so that maybe they'd insure us," said the long-time resident, who asked to remain anonymous. Citizens did write the policy with only hours to spare. But it was a close call and the community is still worried the policy could be canceled in the future.

Sadly, this is just one of many similar homeowners insurance stories you'll hear right now. A recent report from the First Street Foundation said that 6.8 million American homeowners have already been hit with home insurance rate hikes, or worse, non-renewals. Here's what to do if it happens to you.

What to do if your insurer cancels your home insurance policy

You may well be feeling a mix of frustration, stress, and worry at the thought of losing your homeowners insurance coverage. But try not to panic. Most of all, resist the temptation to ignore the problem. Depending on where you live, your insurer should give you between one and three months' notice if it won't renew your policy. That isn't a lot of time, especially if you need to get building work done, so it's important to start looking for a new policy as soon as possible.

1. Find out why your insurer won't continue your policy

Your home insurer may have explained its reasons for non-renewal or cancellation in writing, but it is still worth picking up the phone and talking to a representative. Not only can you ask for more information on why, but you can also ask if the company might reconsider the decision. Find out if there are steps you might take -- specifically repairs or renovations that might make your insurer reinstate your coverage. If you don't agree with the decision, you can challenge it by contacting your state's insurance department.

Common reasons for cancellations or non-renewals are:

• Multiple claims on the property or long-term vacancy.
• The insurer deems the whole neighborhood too risky and is pulling out completely.
• A home inspection revealed issues. This could be problems with your HVAC system, general maintenance, or roof. If your roof is older than 20 years, it can also trigger a non-renewal.

2. Shop for a new policy and take steps to improve your insurability

Unfortunately, if your insurer dropped you because of a condition issue with the property, you'll almost certainly have to address the problems before another company will take you on. That said, shopping for a new insurer goes hand-in-hand with making any repairs. It's good to start shopping around and find out what a new company might want before you spend a lot of money on renovations.

According to Architectural Digest, a new roof could cost anywhere from $5,700 to $12,500, depending on factors like size and materials. At an individual homeowner level, you may not be able to do a lot about wider climate risks. But there might be steps you can take to make your property more resilient. For example, Cal Fire suggests installing dual-pane windows with tempered glass or walls made from materials such as stucco or fiber cement that will be more flame resistant.

If you don't have cash in the bank or your emergency fund, there are several ways you might finance home renovations. If you're worried about taking on debt, it is understandable and there are no easy answers. Try to weigh the cost of the debt against the potential impact of losing your home insurance.

3. Consider a FAIR plan

Unfortunately, as the Boca Raton HOA discovered, you might not be able to get a policy with any of the insurers you try. Before you give up, ask your state's insurance department for a list of insurers that might cover you. It's also worth checking with your neighbors to find out what company they are with.

If this doesn't work, some states have what's known as an insurer of last resort. Also known as FAIR plans, which stands for Fair Access to Insurance Requirements, these policies were designed to help people who couldn't get regular insurance. The Insurance Information Institute keeps a list of FAIR plan numbers for each state.

FAIR plans are not a "get out of jail free" card. The programs don't have to accept every homeowner and the plans often cost more and give you less in terms of coverage. You may still have to make costly renovations to your property to qualify. However, it may be the least-worst option. If you can't get a FAIR policy, you may have to resort to something called surplus lines insurance, which can be even more expensive.

One issue for many homeowners is that mortgage companies require home insurance. If you can't find an insurer that will cover your property, the Consumer Financial Protection Bureau warns that your mortgage lender may take out a forced-place insurance policy. It warns that this can cost as much as double your previous policy and will usually protect the lender, not you.

Bottom line

Many Americans are grappling with soaring premiums or non-renewals in what is a growing home-insurance crisis. If you get dropped by your insurer, the sooner you start to look for a new policy the better. Be prepared to take on what could be costly renovations to make your property more insurable.