Why home insurance companies are sensitive to lapses in the insurance?
Friday, July 24th, 2009 at
9:43 am
Egina asked:
When I shop for a home insurance I am always asked if my home is currently insured or if there are lapses in my insurance policy. Some companies outright refuse to give me a quote when I tell them that I haven’t had home insurance in the last 3-4 months. I am wondering why this is important for them?! They just referred to their company policy and did not give me any meaningful reasoning. Thank you for your answer.
When I shop for a home insurance I am always asked if my home is currently insured or if there are lapses in my insurance policy. Some companies outright refuse to give me a quote when I tell them that I haven’t had home insurance in the last 3-4 months. I am wondering why this is important for them?! They just referred to their company policy and did not give me any meaningful reasoning. Thank you for your answer.
Tagged with: Insurance Shop • Lapses • Shop Insurance
Filed under: Homeowners Insurance
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Insurance companies are wary of lapses in any kind of insurance policies. In your case it just happened to be home insurance.
The single most feared factor in the insurance business is not hurricanes, not bush-fires, not wars, not meteor strikes but what’s known as ‘moral hazard’. Moral hazard is, in simple terms, lack of inhibition in preferring a claim under less than above-the-board circumstances.
For example, if your camera is insured for home use only, you cannot make a claim if the insured camera suffers damage during a jungle safari. Most of us, being honest persons, would not even want to claim under such circs. However, since, as a rule it takes all kinds to make this world, there exist individuals who would make a claim as if the damage occurred at home. Such individuals are considered to be ‘moral hazards’.
Coming back to your original question, insurance companies know from empirical evidence that the incidence of moral hazard is greater – much greater – in those cases where there’s a break iin coverage. It’s likely that the insured is trying to renew the policy after a loss has occurred.
You need to provide evidence to the insurance company that you did not intend to let the policy lapse. That it lapsed, is a fortuitous happenning (please note the wording – underwriters love such language) and not a deliberate omission. ‘I do not want to be penalised for something over which I had no control’ is the line you need to take. You could strike lucky with this line.
Because it drastically increases the risk, that whatever the “something” is that you’re insuring for, has already happened, and you’re going to try to commit insurance fraud with them by trying to claim it happened right after you bought the policy.
If they would issue you a policy, how long before you would let it lapse???
It costs time and money to issue a policy. It you are not going to keep it up to date, it is a waste of time for them to consider you as a potential customer.