Home Insurance Cancellation, Nonrenewal and Policy Lapses

Home Insurance Cancellation, Nonrenewal and Policy Lapses

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When it comes to homeowners insurance, cancellation, nonrenewal and policy-lapsing are all different forms of discontinuation — and each have their own set of consequences. This guide explains exactly why your insurance company may have terminated your coverage, what each term means and how they impact a policyholder.

Homeowners insurance cancellation

Having your home insurance cancelled means that your insurer has decided to stop insuring you or your home immediately (or within a short period after you're notified), usually for a significant reason — and there are only a few situations where it's allowed to do so.

An insurer cannot cancel a homeowners policy after 60 days from the purchase date, unless a policyholder fails to pay their premium, or committed fraud and seriously misrepresented themselves in their application. For example, if the carrier discovers a policyholder lied about their identity and applied for a policy under another individual’s name, it has the right to cancel that policy.

Another possible reason for an insurer to cancel a policy is if the condition of the home deteriorates, causing more risk than what an insurer is willing to cover.

For example, say a carrier insures a home then a policyholder makes some type of drastic change to the structure. If the changes make the home uninsurable, based on the company's own determination, they will cancel the policy.

Your insurance might also be canceled if a homeowners insurance company discovers the home is vacant. Most home insurance policies require policyholders to notify their insurer if a home is vacant for 30 days or more at a time. Uninhabited homes are more susceptible to crime and higher claims.

For example, consider if a fire somehow starts at an uninhabited home - not only is no one there to potentially combat the fire, but no one is there to call the fire department. It’s likely to burn down and be a total loss.

Secondary dwellings where someone might only spend a few weeks out of the year, such as a vacation home, cost more to insure for this reason.

Companies are required by law in most states to give a written notice to the policyholder at least 30 days before a cancellation. Whether or not you intend to fight your cancellation, use this time to look for a new homeowners insurance policy — you don’t want a gap in coverage.

Homeowners who have their insurance policies canceled for any reason frequently have trouble getting coverage in the months that follow. If you find yourself in a position where companies refuse to insure you, contact your state department of insurance. They can provide you with a list of assigned risk carriers (also known as residual market carriers) who offer insurance to those who cannot get coverage from regular insurers.

Nonrenewal of a homeowners insurance policy

A nonrenewal of a homeowners insurance policy is when either the insurance company or the policyholder chooses not to renew the policy when it expires. Either party might do this for a variety of reasons, and there are fewer restrictions than on a cancellation.

For example, a company might not allow a customer to renew their policy due to a high volume of claims filed within a policy period. This might seem unfair — after all, customers pay premiums so they can file a claim when they have to — but insurance companies can’t afford to pay out too much in claims. If an individual files a high volume of claims and the company could lose too much money on them over time, a nonrenewal can result.

An insurance company also might not renew your policy if you file just a few large claims due to damage you cause, even if the damage was unintentional. For example, say you really like candles. You can have candles, but if you frequently forget to extinguish them and have caused two serious fires, a company might not renew your policy.

Liability claims might also lead an insurer to not renew a policy. For example, dog bites are responsible for more than one-third of all homeowners insurance liability claims. A company might not renew a policy if that homeowner has a dog that has bitten multiple people, resulting in claim filings.

Just as a company may cancel a policy, they also might choose not to renew one. If a policyholder has a history of making late payments, that might not be grounds to immediately cancel their policy, but their insurance company can decide not to renew it.

A nonrenewal might occur purely because a company stops offering that product or service in the policyholder's area. Whether a policyholder is in good standing or not, insurance company business strategies can be a reason behind a nonrenewal.

Insurance companies are required to give written notice of a nonrenewal prior to the expiration of the policy. This allows policyholders time to establish a policy with a new insurance company so there is no gap in coverage. The exact time frame varies by state, but 45 days is a common time limit.

What to do when your homeowners insurance policy lapses

Homeowners insurance policies often lapse after a policyholder misses multiple payments. If you miss a payment, companies usually continue coverage for 30 days before the policy lapses.

There are several reasons you should try to avoid letting your homeowners insurance policy lapse. The most important is that you won’t be adequately protected. Remember that home insurance covers more than just the structure of the home; it also protects your personal belongings, provides liability protection and covers living expenses if your home becomes uninhabitable.

Allowing your home insurance policy to lapse might cost you a lot more money in the long run, even beyond exposing yourself to financial risk. Most homeowners are required to buy a home insurance policy if they purchased their home through a mortgage lender. Lenders require the coverage to protect their financial interest in the home.

If the policy lapses for any reason, the mortgage lender will find an insurer to cover the home on behalf of the policyholder. Policyholders should do everything they can to avoid this circumstance, because they will be financially responsible for the cost of the new policy. Lender-placed policies are frequently more expensive than what policyholders might find otherwise and their level of coverage might not be adequate. For example, a lender-forced policy may cover the physical dwelling appropriately but fall short on personal property coverage, since lenders have no financial stake in a homeowner's possessions.

Policyholders who allow their home insurance to lapse also might have a hard time getting a policy with a new carrier — although not as much difficulty and those whose policies were canceled. If your home insurance policy has lapsed, call your agent or company as soon as possible and see if they will allow you to reinstate it.

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