A homeowners insurance lapse occurs when you go without coverage for any period of time — even one day. There are a few common ways it can happen, for example:
- Your insurance company canceled your policy (for reasons like physical changes to your property)
- You failed to make payments on time (which can lead to suspension or cancellation of coverage)
- You let your policy expire without securing a new one
What can happen if my homeowners insurance lapses?
Your rates may go up. Even if your policy lapsed 2 days ago, you may face higher rates when you give your insurer a call to get it started back up. That’s because actuaries have found that people who maintain continuous insurance over the years tend to pose less of a financial risk, so letting your coverage lapse — even for a short time — could put you into a higher-risk category when it comes time to determine your new homeowners premium.
Your lender may purchase expensive insurance for you. If you have a mortgage on your home, your lender likely requires continuous homeowners insurance as part of the conditions of your loan. If your policy lapses for any reason, your mortgage company is often notified. The mortgage company typically has the right to purchase a policy on the home and pay for it through your homeowners escrow account — which will, in turn, raise your mortgage payments. Not only is this insurance almost always much more expensive than a typical homeowners policy, but it often entails lower-quality coverage, too. Lender-placed insurance often does not cover home contents, only the building itself and attached structures. Additionally, in some cases, the mortgage company could see this as a violation of the terms of your loan and may take legal action against you to recover the full amount of the money loaned.
You might have trouble getting insured again. If you let your coverage lapse, there’s a possibility you’ll have a harder time getting a policy for the same financial-risk reasons mentioned above. This means the companies that may take on your risk are likely to do so for either fewer coverages or higher premiums- or both.
If something happens while you’re uninsured, you’re out of luck.
Say you let your policy expire and haven’t secured a new one. Just as luck would have it, lightning hits a tree in your yard, causing it to fall on your roof and cause major damage. Or maybe a thief breaks into your place while you’re on vacation and steals some family heirlooms. You are financially responsible for those situations. Even if you secure a home policy right after an incident occurs, home insurers will not cover damage that happened before the policy’s start date.
What can you do? First, call the most current insurance provider to find out whether the company will reinstate the policy. Although this isn’t always possible, it may be the easiest and least costly thing to try first.
If you cannot get the policy reinstated, work with a local independent agent who can work with their various carriers to see who may be willing to take on the risk, at what price point. After a few months, work with your independent agent to see if it makes sense to consider other carriers if new rates are excessive. Transitioning to a new carrier is easier when there is already insurance placed on the home. Additionally, rates may be less expensive as you build up a history of continuous coverage.
For any additional questions, reach out to your independent insurance agent. Of course, we are always happy to help too! keslarinsurance.com, 603 273 0953
