What Happens to My Mortgage if Homeowners Insurance Is Canceled?
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Homeowners insurance covers you and your family if your home is damaged or destroyed by a covered event such as vandalism, smoke, fire, windstorm, lightning or hail. Also, you are covered if someone is hurt on your property, and your personal belongings are covered in the event of a theft. Discovering that your homeowners insurance has been discontinued through a lapse, non renewal or cancellation can be scary. You may have to pay thousands of dollars out of pocket if an accident or loss occurs during this lapse in coverage. Additionally, without home insurance, you may default on your mortgage, which requires home insurance coverage. You may have a hard time finding affordable home insurance policy in the future too.
Can You Lose Your Mortgage if Home Insurance Is Canceled?
Policyholders with a mortgage and a canceled homeowners insurance policy will need to get a new policy as soon as possible. You may lose your mortgage if your homeowners insurance is canceled. Mortgages have specific language stating that you are in default if you don’t keep your insurance active. Although your lender will first enforce more expensive lender-placed insurance, failure to pay could result in the eventual foreclosure of your home.
If your policy is canceled, your ability to obtain a new policy may vary. If your policy was canceled for filing too many claims, you may have a difficult time buying a new policy. Your insurance history is recorded in the Comprehensive Loss Underwriting Exchange database, which will let insurers know about your insurance history — if your policy was canceled and never renewed. Home insurers may be reluctant to write a new policy for you based on how many claims you’ve filed or if you didn’t make timely payments.
What Types of Home Insurance Terminations Are There?
Your insurer may choose to not renew your policy or cancel it or you may have a lapse in coverage due to nonpayment.There are various ways a home insurance policy can be terminated. Some issues can be resolved right away, while others may require switching to a different insurer.
Types of home insurance cancellations include:
A lapse
A lapsed home insurance can be remedied if you handle it quickly enough. A policy lapses when payments are not made. A lapse in your coverage puts you at financial risk if anything were to happen to your house. The good news is that many insurers allow a grace period in which you can reinstate your coverage if you pay your overdue bill. If you wait too long, your mortgage company may pay your insurance from an escrow account.
Nonrenewal
Either you or your insurer can initiate a nonrenewal. You may decide to do so if you found better homeowners insurance quotes from other insurance companies and have decided to switch. If you decide to not renew your policy, let your insurer know. Your insurer may choose to not renew your policy for many reasons including your home’s condition, your history of claims or they no longer offer coverage in your area. Your insurer will notify you in writing if they decide to not renew your home insurance before renewal.
Your insurer can refuse to renew your policy for several reasons, including:
- A bad credit score
- Filing too many claims
- Owning an aggressive breed of dog
- Not living in your house
- Having a pool or trampoline
- Having a criminal record
Cancellations
Either you or your insurer may initiate a cancellation. Unlike a nonrenewal, you can cancel your policy at any point but your insurer must give you notice. If you find a cheaper policy or have sold your house, you can initiate a homeowners insurance cancellation easily.
If your insurance company conducts a home inspection and discovers structural issues, they may ask you to fix the problems or else they will cancel the policy. They may also cancel the policy if you haven’t paid your insurance or if you’ve engaged in illicit or fraudulent behavior.
|
What it means |
How it can happen |
Is notice required? |
|
|---|---|---|---|
|
A lapse |
Your policy is not active |
You missed one or multiple payments |
Varies per state. Some states require insurers give 10 days notice when canceling your policy for nonpayment. |
|
Nonrenewal |
Your home insurance policy will not be renewed at its expiration date |
Filing too many claims, change in risk |
Insurers must give policyholders,20 to 60 days notice |
|
Cancelation |
Your policy is terminated before its expiration date |
Application fraud, filing too many claims, change in risk |
Depends on why the policy was canceled |
What Should You Do if Your Home Insurance Policy Lapses?
When you buy a home, your mortgage lender will require that you have a home insurance policy to keep their financial investment safe. If your home insurance policy lapses, you should do everything you can to reinstate it or find a new one.
You and your mortgage lender will be notified by your insurer if you have a lapse in your policy or a cancellation. Contact your insurer immediately and make your past-due payments. Once your policy is reinstated, let your lender know that your policy is active again.
If you fail to reinstate your policy, having home insurance is a condition of your mortgage, and your lender may find their own insurer to protect your home and expect you to pay for it, even if it’s very expensive and may provide less coverage.
Does a Canceled Home Insurance Policy Stay on Your Record?
Insurers report events like canceled policies and claims to the Comprehensive Loss Underwriting Exchange (CLUE) database. This database typically keeps records for five to seven years. All insurers will look at your record and recent claims history to price your new home insurance policy.
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Key Takeaways
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Get a New Home Insurance Policy After Being Canceled
It can be frustrating to have a canceled home insurance policy, and finding an affordable new policy can be difficult. Your search may be challenging, depending on why your policy was canceled. However, going without coverage is the last thing you want to do. Your best option is to shop around for a new policy. Even if you have a high number of claims, it is still possible to find an insurer you can afford. Call SmartFinancial at 855.214.2291 to speak with an agent, or enter your zip code below and fill out an online form to get quotes right away.
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