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High Risk Homeowners Insurance Protect Very Vulnerable Homes

By Mike Heuer


As the aftermath of the 2005 Hurricane Katrina strike indicated, there are many homes located in highly vulnerable areas that make it very difficult to find even remotely affordable homeowners insurance protection. In the case of the tens of thousands of homes damaged or destroyed in and around New Orleans and other Gulf Coast communities, their location within flood plains makes them high risks for insurers to underwrite. But more than just homes located in flood plains are at risk of extensive damages or destruction on an annual basis.

Many homes might be located in traditional burn areas and are at high risk of wildfires. Others, like in Oklahoma, are situated in locations where tornadoes and other high-winds events can wreck havoc. A lot of homes also are located in high crime areas and could be especially vulnerable to home invasions, vandalism and other forms of criminal activity.

Older homes that have not been upgraded in several years and still contain very old plumbing and electrical systems can be declared high risks due to their elevated vulnerability to internal water damage or electrical fires. Even homes that have more than one claim filed within a couple years can be declared to be high risks by insurers, whose tolerance for frequency of claims filings varies.

Fortunately, high risk homeowners insurance can help protect such homes and other properties. Only about 1 percent of homes in the United States are denied coverage for being high risks, according to the Insurance Information Institute. So most homeowners will have no concerns about obtaining traditional homeowners insurance policies.

But the federal government has been expanding its flood plain maps and requiring more homeowners to purchase flood insurance while at the same time essentially forcing “high risk” status upon them. But many high risk homeowners insurance plans are available through insurers of last resort in many states with a lot of homes and other properties that are in high risk areas from various perils.

Several states have FAIR Plans in place, which provide high risk homeowners insurance policies for vulnerable homes when there are virtually no other alternatives available for insuring their houses. The policies cost more than more traditional homeowners insurance plans and have limited coverage available. But for many homeowners, they are the only homeowners insurance plans they can buy for their high risk homes.

Some states also provide beach and windstorm policies in lieu of traditional homeowners insurance plans where homes and properties are located in areas vulnerable to flooding and wind damages from hurricanes, tropical storms and other environmental factors. State officials in North Carolina have been working to reform the state’s overextended beach and windstorm insurance system for homes. And in Florida, the Citizens Property Insurance Corp. was created in 2002 and has become the states single largest insurer of homes.

Regardless of where a home is located and state efforts to mitigate the costs of buying high risk homeowners insurance, there generally are resources available to homeowners who need insurance protection but cannot obtain traditional home insurance plans through private insurers.