When a home becomes difficult to insure, the plan changes

Financial advisors typically don't hear about a client's homeowners insurance unless a renewal increases the cost. A nonrenewal is a different kind of notice. Clients need to understand that it can affect the value of their largest asset, a future buyer's ability to obtain financing and whether their plan can count on the proceeds of a sale.

This is no longer a problem limited to coastal states. County-level data released by the U.S. Senate Budget Committee, covering 2018 through 2023, show nonrenewal rates rising in climate-exposed areas nationwide. Over roughly the same period, policy counts in state FAIR plans, the insurers of last resort, grew about 98% nationwide, according to AM Best. Premiums keep rising as well. Insurify projects the average homeowners insurance premium will reach $3,057 in 2026, up 4% after a 12% jump in 2025.

I am a direct home buyer, and I purchase homes in Southern California. For many of the sellers I meet, insurance has already played a major role in their decision to sell by the time I make an offer. For homeowners and their financial advisors, a nonrenewal signals several downstream issues, and it is rarely noticed in time to address them.

First, it is important to understand that a nonrenewal affects the asset, not just the household budget. Nearly all buyers who need a mortgage must show proof of homeowners insurance before the lender will close and fund the loan. Some risks make a home difficult to insure, and that can cause a buyer to walk away from a deal. As a result, the seller may have to lower the price so the monthly costs work for the buyer. In practice, a home with insurability issues may be worth less than an appraisal indicates.

For some older clients, the bigger issue isn't the premium. It's how a loss of coverage affects their plans for care and later life. Many clients count on the proceeds from selling the home to pay for a move or care-related expenses, and insurability problems can put that goal at risk. Some clients who no longer have a mortgage may also drop their homeowners insurance or other protective coverage altogether when faced with a large premium increase.

What advisors can do

Advisors can add three questions to the next review of a client file.

1. When did your homeowners policy last renew, and what changed, if anything? Review the terms of the coverage, and check whether the insurer added a new exclusion or a higher deductible.
2. Who currently insures the home? A move to a state FAIR plan or a surplus lines carrier should be noted in the file, because it may restrict coverage options, and the next buyer may face the same constraints.
3. If you need to sell the house in the next few years, what would a buyer need to insure it? The answer matters to both sides of the transaction. Roof and electrical upgrades can affect a buyer's options, as can wildfire and storm mitigation. Clients often find this out during escrow, when a buyer's insurance quote ends the deal.

As a risk management plan, the client may want to work with an independent insurance agent who can check what other coverage is available, including surplus lines options. The client can also ask which mitigation measures insurers will credit. For example, replacing an older roof can better protect the house and make it easier to insure. The client may want to keep enough cash on hand to cover a higher deductible. And the plan should be stress-tested for a sale at a lower price, or one that takes longer to complete.

A nonrenewal letter describes the client's situation. It is also an opportunity to put a plan in place on the client's own timeline, rather than under the pressure of a forced sale.

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