What happens if my home insurance company becomes insolvent and goes out of business?

Liquidating is similar to a bankruptcy. The purchasing corporation has the option of holding or selling all of the assets of the insolvent company, including any insurance policies you have with the company. Your rates may change, and the letterhead of the company you receive statements from may change, but your policy is a binding contract that must be honored by the participants of the contract.

In order to reduce the debt of the home insurance company, bulk numbers of policies may be sold to one or more buyer, or the company's finances may be seized and used as though it had always belonged to the new owner. Guarantor banks may purchase insurance policies and other salable documents and certificates, using your policy, purchased at a discount from the original underwriter, as an investment.

The policy itself may not change at all, and will remain effective as long as your premiums are paid up. There may be some minor changes made to bring the exact wording of the policy into balance with the company's existing procedures. But if your home is insured with a standard homeowners policy for $300,000, that amount of coverage will remain in force as the policy is transitioned over.

In some cases, you may receive contract negotiations which effectively cancel your current coverage and transfer the coverage to a new policy under the new owner. Keep in mind that if you are required to sign any paperwork, you also have the option of canceling the policy and purchasing a new one from another company entirely. Home insurance is typically an annual contract which automatically renews, but you have the option of changing insurance companies whenever you want. Just be careful not to make changing companies a habitual event, because that could count against you when your premiums are calculated.