Before Buying Home Insurance, Do Not Look at Price Alone: Inspection and Cancellation Terms Matter Too
Why Does an Insurance Company Inspect a Home After Issuing the Policy?
Shanti
9/2/20262 min read
Before Buying Home Insurance, Do Not Look at Price Alone: Inspection and Cancellation Terms Matter Too
Many people focus mainly on the premium when purchasing home insurance. However, two other issues can become very important later: the home inspection that may take place after the policy is issued and the refund terms if the policy is canceled.
Sometimes a policy is issued and the homeowner assumes everything is final. However, after coverage begins, the insurance company may conduct an inspection to evaluate the condition of the property.
Why Does an Insurance Company Inspect a Home After Issuing the Policy?
The insurance company wants to make sure that the information provided when the policy was issued matches the actual condition of the property. During an inspection, the company may review items such as the condition and age of the roof, electrical wiring, plumbing, heating and cooling systems, the exterior of the home, nearby trees, stairs, railings, swimming pools, and other safety related features.
Some inspections are conducted only from the exterior of the property, while in other cases the insurance company may request an interior inspection as well.
If a problem is discovered during the inspection, the insurance company may ask the homeowner to correct it within a certain period of time. In some cases, the inspection results may also lead to changes in the policy terms, premium, or the insurance company’s underwriting decision. For this reason, if the insurance company or inspection company contacts you, it is important to take the matter seriously and communicate with your insurance agent as soon as possible.
What Happens If the Premium Increases After the Inspection and You Want to Cancel the Policy?
This is where another important part of the insurance contract comes into play: cancellation and refund terms.
Some people assume that if they purchase a one year insurance policy and use it for only one or two months, they will receive almost all of the remaining premium back if they cancel the policy. However, that is not always the case.
Some insurance policies include a provision called a Minimum Earned Premium. For example, if the quote states:
Minimum Earned Premium: 25%
This means that under the terms of the policy, the insurance company may consider at least 25 percent of the premium earned once the policy has been issued, even if the policyholder cancels the policy before the end of the policy term.
In addition, certain fees, such as policy fees, inspection fees, or other costs associated with issuing the policy, may be nonrefundable.
Therefore, if the insurance company changes the premium after an inspection and you decide to cancel the policy, the amount of your refund may not necessarily be based simply on the number of months remaining on the policy.
What Should You Know Before Buying Home Insurance?
Before choosing an insurance quote based only on price, ask your agent or broker several important questions:
• Will an inspection be conducted after the policy is issued?
• What happens if the inspection identifies a problem?
• Could the premium or coverage change?
• If we decide not to continue the policy after the inspection, what are the cancellation terms?
• Does the policy have a Minimum Earned Premium?
• Which fees are nonrefundable if the policy is canceled?
When purchasing home insurance, the initial price is only one part of the decision. Understanding the inspection, underwriting, cancellation, and refund terms can help prevent unexpected costs and serious misunderstandings later.
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