What happens when your home insurance lapses

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A homeowners insurance lapse may happen to even the best of policyholders. An oversight on your insurance bill or a failed automatic payment may cause your coverage to lapse for nonpayment. It is relatively simple to handle — pay your past-due insurance bill, and your coverage should be reinstated.

However, letting your home insurance lapse is risky and should be avoided. If your homeowners policy lapses, even if just for one or two days, any damages that occur during that time, such as home burglary, windstorm or fire, could leave you without coverage to pay for your losses. In addition, a lapse is noted on your home insurance record and could lead to higher insurance premiums in the future.

What happens if my homeowners insurance policy lapses?

If you do not pay your insurance bill after a certain amount of time, your home insurance will be canceled, creating a lapse in coverage. However, other reasons besides nonpayment could cause your home insurance to lapse, including:

  • You misrepresented yourself on your application: For instance, if you omitted that you own a pit bull or that you do not plan on living in the home full-time, your insurance company may cancel you if they find out.
  • You are considered high-risk: Your carrier may decide that too many claims or late insurance payments make you too high-risk to insure. Or, if the area you live in just suffered deadly wildfires or flooding, the insurance company may reconsider insuring you.
  • A negative home report or deferred maintenance: If your roof needs replacement and you have been avoiding it, or the initial home inspection showed that the electrical wiring is defective or outdated but has not been replaced, an insurance company may decide to cancel your coverage.

Any of these scenarios may cause you to lose home insurance coverage. Finding an alternative quickly before your insurance lapses and you end up without coverage is vital. The homeowners insurance grace period is typically 30 days if you forget to pay your premiums. If you receive a warning letter for non-payment, you should act fast to reinstate your policy and avoid a lapse in coverage. Here is what could happen otherwise:

Your mortgage lender will buy home insurance coverage

Part of the requirements you agreed to in the large stack of closing documents you signed when you purchased your home is maintaining continuous home insurance coverage with the lender as named insured. If your policy lapses, the insurance company will notify the lender, who may purchase a policy on your behalf to avoid leaving your home without coverage.

The issue is, the lender may not shop around to find you the best deal on home insurance. You may be forced to pay for a new home insurance policy that is much more expensive than your lapsed one. It may also only include dwelling insurance for the home’s structure, leaving all your personal belongings uninsured.

Your premiums may increase

Even if you reinstate your existing home policy, the carrier will likely note the lapse in your records. The lapse could lead to higher insurance premiums since your carrier may find you riskier to insure because you went without coverage for a certain period.

You will have trouble finding coverage with another carrier

If you fail to make good on the lapse, other carriers may not insure you. One of the questions most insurance applications ask is if you have had a lapse in coverage in the past. If you did, you might be rejected. And not being truthful is worse — if (and when) the carrier finds out, your policy will be canceled for misrepresentation or fraud.

You would have to pay for losses out of pocket

As mentioned, a lapse in your coverage means that you were uninsured for a certain period. It could be days or weeks, but the risk is the same — if something happens during the lapse period, you will not have any financial protection from homeowners insurance and will have to pay the expenses and losses out of pocket.

How do I get homeowners insurance coverage after a lapse?

If your home insurance has lapsed, finding coverage immediately should be a priority. Even if you plan on disputing the lapse with the carrier, the process could be slow. Having coverage while you wait for a decision is necessary. To get started, select a few insurance companies and get quotes.

Once you have collected a few quotes, carefully compare rates, policy limits, and deductibles to narrow down your list to two or three insurance companies. Do your research on the carriers by looking at customer reviews. After you choose a home insurance company, complete the application process as truthfully and thoroughly as possible. Be sure to set the effective date to immediate and contact your mortgage lender with the details of your new policy before they purchase home insurance on your behalf.

Ways to save on homeowners insurance coverage

If you are struggling with the cost of your home insurance and have trouble making the monthly payments, finding ways to save on your home insurance could bring your budget some relief. Consider the following ideas to lower your rates:

  • Bundling: Buy your car and home insurance with the same carrier to receive a discount on both.
  • Switch carriers: Periodically compare home insurance rates from a handful of carriers. You may find it is cheaper to switch companies to pay less for coverage.
  • Raise your deductible: If you do not expect to file a homeowners claim, you could raise the deductible to a higher amount to lower your rates. The key is to raise it enough to save on your premiums while still being able to pay out the amount in case of a claim.
  • Adjust your property limits: Take the time to tally the cost of your personal property, such as furniture, fixtures, electronics and more. You may be paying more for personal property insurance than you own and could possibly lower the amount.
  • Add a security system: Many of today’s home security systems are affordable and DIY. Adding cameras, door sensors, deadbolt locks, smoke detectors or a water leak detector can help you save on your home insurance.

Frequently asked questions

What happens if your homeowners insurance is cancelled?

Having your homeowners insurance canceled can be unpleasant. You will receive a letter explaining why your insurance was dropped with an effective date. You will need to find a new home insurance policy to replace the canceled one. Do not delay, or your coverage could lapse, leaving you exposed to risks such as fire or theft.

How much does home insurance cost?

The average annual cost of home insurance is $1,312 for a home with a dwelling coverage amount of $250,000. Your rate may vary based on where you live, the value of your home and your past claims history.

Who has the best home insurance?

There are many quality home insurance companies. Bankrate’s list of best home insurance companies includes USAA, MetLife, Allstate and Lemonade. To find the coverage for your needs and budget, shop around and get quotes from a few carriers before you decide.

Written by
Cynthia Paez Bowman
Personal Finance Contributor
Cynthia Paez Bowman is a finance, real estate and international business journalist. Besides Bankrate.com, her work has been featured in Business Jet Traveler, MSN, CheatSheet.com, Freshome.com and SimpleDollar.com. She owns and operates a small digital marketing and public relations firm that works with select startups and women-owned businesses to provide growth and visibility. Cynthia splits her time between Los Angeles, CA and San Sebastian, Spain. She travels to Africa and the Middle East regularly to consult with women’s NGOs about small business development.