What happens when your home insurance lapses
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A lapse in home insurance coverage could happen to even the most responsible policyholders. It could have been a missed insurance bill or failed automatic payment, but the result is the same. If your homeowners insurance policy is no longer in effect — even for a few days — that means that any home burglary, windstorm or fire loss could leave you exposed. Here’s what to do if you realize your home insurance policy may have lapsed.
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and you have been avoiding it, or the initial home inspection showed that the electrical wiring is defective or outdated but has not been replaced, an insurance company may decide to cancel your coverage.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
Maintaining an active homeowners insurance policy is a mortgage requirement from your lender. 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.
If this happens, your lender may initiate what’s called “forced place insurance,” in which it will purchase a new home insurance policy for you. It typically will not be the cheapest homeowners insurance policy available, and could be even more expensive than your previous policy. The coverage could also be more limited, providing only dwelling coverage for your home’s structure and leaving all of 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 likely 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.
- 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 could help you save on your home insurance.
Frequently asked questions
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.
The average annual cost of home insurance is $1,383 for a home with a dwelling coverage limit of $250,000. Your actual rate could vary, especially if you have a previous claims history with homeowners insurance, and depends on where you live, the size and square footage of your home and more.
It’s difficult to pinpoint a single carrier as the best home insurance company for all homeowners. Instead, consider what’s important to you, whether it’s affordable premiums, financial strength or dependable customer service, and request quotes from multiple carriers before you make a decision.