What Happens When Your Home Insurance Lapses?

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Most homeowners know the value of having solid home insurance. Without it, you risk incurring out-of-pocket expenses in the event of a disaster. But not many know how to get your homeowners insurance back after your coverage lapses. Homeowners insurance lapses can happen for a variety of reasons, from late payments to the insurance company going bankrupt, but they usually need to be addressed quickly to avoid finding yourself without coverage. Bankrate created this guide to help you understand what happens if your home insurance lapses and how to prepare yourself if it does happen.

What happens if my homeowners insurance lapses?

Lapsing your homeowners insurance can cause immediate and long-term financial damage. A lapsed insurance policy can leave you without immediate coverage and can quickly ripple out into other problems. Below are some of the consequences a homeowners insurance policy can expect if it lapses:

The loss must be borne by the

A lapse in insurance means you are uninsured. It could be for a few days or a few weeks, but the risk is the same. If something happens during the lapse, you won’t have the financial protection from your homeowners insurance and you’ll have to pay for expenses and losses out of your own pocket.

Insurance premiums may increase

If you discover that your policy has lapsed within a few days, your insurer may be able to reinstate your policy. Reinstatement means that your policy will continue as is (without taking into account the lapse) after you have made your payment. However, this is usually the exception.

In most cases, you will need to pay any overdue amounts and then start a new policy with a new effective date. Even if you have been uninsured for a short period of time, your home insurance premiums may be higher because your insurance company may consider you a higher risk under your policy. Rate changes, especially increases, that would have taken effect at your next policy renewal usually take effect on the start date of your new policy.

You may not be able to receive services from other carriers.

In some circumstances, it may be difficult to obtain a new policy from another insurance company after your policy lapses. Even the insurance company with whom you had a policy before the lapse may not offer you a new policy depending on their underwriting criteria. If damage occurred during the lapse, you may have to provide documentation that your home was repaired in order to obtain a policy. One of the questions asked on most insurance applications is whether your home insurance has lapsed in the past. If so, your policy may be denied.

Mortgage lenders purchase home insurance

Maintaining a valid homeowners insurance policy is a typical mortgage requirement from your lender. If your policy lapses, the insurance company must inform the lender that your policy has lapsed. Typically, the mortgage company will give you a period to secure a new policy and provide proof of coverage. If you do not have insurance, the mortgage company may force you to start an insurance policy to reduce the risk that your home will be damaged while you are uninsured.

Mandatory insurance is usually not the cheapest homeowners insurance available and can be more expensive than your previous policy. It also likely has limited coverage and often does not include personal liability coverage. If homeowners do not pay their mandatory premiums, they risk having their home repossessed.

You cannot claim damages

If you don’t have home insurance, you will be responsible for paying for any repairs or replacements caused by the damage. Attempting to retroactively file a property insurance claim for damage that occurred while your insurance was lapsed is a felony punishable by jail time and large fines.

Why does home insurance lapse?

If you don’t pay your premiums within a certain period of time, your home insurance will be cancelled and your coverage will lapse. However, other circumstances that can cause your home insurance to lapse include:

There was a false statement on your application: For example, if you fail to mention that there are restrictions on the breed of dog you have, or that you don’t plan on having one live in your home full-time, the insurer has the right to cancel your policy mid-way through the policy term.
You are considered high risk: Insurance companies may decide that you are too high a risk to insure if you make too many claims or are late with premium payments.
Negative reports or deferred maintenance on the home: If your roof needs repair or replacement but you avoid doing so, or if your initial home inspection finds faulty or outdated electrical wiring but you don’t replace it, your insurance company may drop your coverage.
Insurance fraud: Insurance companies have the right to cancel insurance contracts if they find that the policyholder has intentionally caused damage to make fraudulent claims or acted in a manner that violates the terms of the insurance contract, including providing false information on the insurance application.
Insurance companies leaving the state: Insurers may reevaluate their risk models and determine that a particular region is not profitable enough due to the risk of future catastrophic losses like the wildfires in California or the hurricanes in Florida and Louisiana. In such cases, providers may choose to stop signing new business for a particular type of risk or withdraw from that state. In some cases, companies may voluntarily withdraw from a particular market. Either scenario may result in non-renewal of home insurance policies, requiring homeowners to secure other coverage in advance to avoid lapses. Most states require at least 30 days advance notice for non-renewal and termination.
Insurance company goes bankrupt: If an insurance company declares bankruptcy, meaning it is unable to pay or restructure its debts, your policy may also lapse. In the process, your policy is usually transferred to another insurance company, but this is not guaranteed. It is important to ensure that your coverage continues, either by transferring or by taking out a new policy yourself, so that a lapse in your policy is not recorded in your insurance history.

Any of these scenarios could result in you losing your home insurance coverage. It’s important to find an alternative quickly, before your insurance lapses and you lose your coverage. If your premium payments aren’t made on time, you may have a short grace period before your homeowners insurance coverage is cancelled, but if you receive a warning letter for non-payment, you’ll need to act quickly to avoid losing your coverage.

How do I get my homeowners insurance coverage after it lapses?

Having homeowners insurance after a lapse is crucial if you want to ensure financial protection against covered perils. Usually, the best course of action is to contact your insurer immediately to see if your policy is eligible for reinstatement and to cancel the lapse. However, this option is not always possible, especially if the lapse lasted more than a few days, there was damage to the property that was not repaired, or the policy had previously been reinstated to avoid a previous lapse.

To get your homeowners insurance coverage after it lapses, follow these steps:

Collect citations. Get quotes from several insurance companies to determine which ones will insure you after your lapse. Be upfront about your lapse so you don’t waste time getting quotes from insurance companies that won’t insure homeowners whose insurance has lapsed.
Compare quotes. Once you have gathered quotes with the same coverage options, limits, and deductibles, compare prices. Once you have narrowed down your choices of companies, research customer reviews and other factors you look for in a company to determine which company best suits your needs.
Apply for compensation. Complete your company’s application, including setting an effective date, as soon as possible so that your insurance coverage can be applied.
Check your payment options. If there is an expiration date on the record, the insurance company may require a down payment or allow the insurance premium to be charged to the mortgage company. If the insurance company issues an invoice to the lender, make sure the insurance is already in effect compared to when the lender makes the payment.
Notify your lender. Once you have insurance, contact your lender to give them the details of your new insurance and to prevent or stop the company from forcibly insuring your home. Your mortgage company may request proof of insurance, which you can either send yourself or have the insurance company submit it on your behalf.

How to Save on Home Insurance Premiums

If you’re struggling with the cost of home insurance, finding ways to save on your premiums could help ease some of the strain on your budget. To lower your rates, consider these ideas:

bundle: You can often get significant discounts when you buy your auto and home insurance from the same insurance company.
Switch carriers: Compare home insurance rates from several insurers on a regular basis, as you may be better off switching insurers to save money on your premiums.
Increase your deductible: If you don’t mind paying more out of pocket, you can lower your premiums by increasing your deductible. The key is to increase your deductible enough to save money on your premiums and still be able to pay a claim. Homeowners who live in hurricane-prone coastal states or tornado belt states may be required to pay additional deductibles for windstorm and wind/hail damage.
Adjust the compensation limits: Homeowners insurance coverage generally depends on the amount of your home coverage, but some coverages may be adjustable. For example, if your personal property coverage is currently 70 percent of your home coverage, you may be able to reduce your coverage to 50 percent and save money on your premiums. Another area where you can reduce your coverage is “other structures” if you don’t have an exterior structure on your property, such as a pool, gazebo, shed or detached garage. Talk to your insurance company about adjustable coverages and what coverage you need.
Add a security system. Adding cameras, door sensors, deadbolt locks, smoke detectors, and water leak detectors can help you save money on your home insurance premiums.