Home Insurance Coverage Issues In-Depth
Exclusions and Limitations
Limitations and exclusions can alter the provisions of coverage in an insurance policy. A limitation is an exception to the general scope of coverage, applicable only under certain circumstances or for a specified period of time. An exclusion is a broader exception which often rules out coverage for such things as intentional acts, when the policy covers damages due to negligent acts.
Rates and Applications
State insurance laws dictate the manner in which insurance companies may conduct marketing, underwriting (determining which policyholders or risks to accept or reject for coverage), and rate activities. Insurance underwriting decisions must be based on reasons that are related in some way to the risk that is to be insured. Some states have laws limiting an insurance company's ability to cancel or discontinue coverage once a policy has been issued. In all states, it is illegal to refuse insurance on the basis of race, color, sex, religion, national origin or ancestry. In many states this list is expanded to include marital status, age, occupation, language, sexual orientation, physical or mental impairment, or the geographic area in which a person resides. An individual has a legal right to be promptly informed of the reasons for a refusal to issue an insurance policy.
Insurance companies determine the premium, or payment to charge, based on numerous circumstances known as rating factors. These rating factors must be reasonably related to the risk being insured. The rates and rating factors for insurance must be filed with the state insurance regulatory agency for each state where the insurance is to be sold. In certain states, the rates must get regulatory approval before they can be used.
Generally, once a policy is issued, it can be cancelled only for failure to make premium payments, or for misrepresentation or fraud by the policyholder. State laws typically limit items an insurance company can include in the cancellation provisions of its policies. Most property and liability policies are issued for a stated policy term. The limitation on cancellation applies only during the policy term. Insurance companies can decide to discontinue or not renew these policies at the end of the term for any reason that is not prohibited by law. In most states, an insurance company is required to provide the policyholder with written notice if it intends not to renew a renter's or homeowner's policy.
A policyholder may cancel an insurance policy at any time by giving notice to the insurance company. Some clauses include financial penalties for early cancellation by the policyholder. Most property and liability policies require what is known as a short rate penalty when a policyholder requests cancellation, which gives the insurance company the ability to retain a larger, disproportionate amount of the premium.
A cancellation notice usually must be sent to the policyholder several days prior to the effective date of cancellation. State law usually requires at least 10 days advance written notice, with a reinstatement period. Once the time period has expired, reinstatement after termination of coverage is discretionary by the insurance company.