What Happens to My Mortgage if Homeowners Insurance is Canceled?

Mortgage lenders typically require borrowers to maintain homeowners insurance throughout the repayment period, so you could have to pay for expensive home insurance coverage obtained by your mortgage company or potentially face foreclosure if your current policy lapses or is canceled.

Continue reading for a more detailed rundown of what happens to your mortgage if your homeowners insurance is canceled and how the cancellation of your policy could affect your coverage options in the future.

On This Page

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  Can I Lose My Mortgage if My Homeowners Insurance Is Canceled?

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  Can My Home Insurance Be Canceled at Any Time?

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  Why Do Insurance Companies Typically Cancel Homeowners Insurance?

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  What Should I Do if My Homeowners Insurance Is Canceled?

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  FAQs

Can I Lose My Mortgage if My Homeowners Insurance Is Canceled?

Mortgage contracts usually come with the stipulation that you are required to have homeowners insurance, which means that the cancellation of your policy could cause you to default on your loan and put you at risk of losing your home. That said, it is likely that your lender will purchase a force-placed insurance policy on your behalf before foreclosing on your home.

If this happens, you should try to find a different home insurance policy for yourself as quickly as possible because force-placed insurance often provides little coverage at a high price.

For example, force-placed policies may only include dwelling coverage and may only insure your house up to your outstanding mortgage balance rather than the home’s replacement cost.^[1] Despite this, the price for a force-placed home insurance policy can be double that of a standard policy.^[2]

Can My Home Insurance Be Canceled at Any Time?

Your insurance carrier is generally free to suddenly terminate your homeowners insurance policy for any reason during the first 60 days that it is active. Afterward, the insurer must provide advance warning if it intends to end your coverage early. For example, insurance companies in Illinois must mail you a home insurance cancellation notice 10 to 30 days before canceling your policy depending on the reason for the cancellation.^[3]

Similarly, your insurance carrier must give you advance warning if it plans on discontinuing your policy after the end of the current coverage period. In this scenario, your insurance provider may have to notify you of the nonrenewal of your policy one to three months in advance depending on the state you live in.^[2]

Is There a Cancellation Fee for Home Insurance?

Some insurance companies charge a cancellation fee if you decide to cancel your own policy. As a result, even if you find a better deal through a different insurer, you should evaluate whether it would be more cost effective to wait until the end of your current coverage term before switching policies. Depending on where you live, your home insurance company may be required to inform you up front if you will be charged a penalty for canceling your policy early.^[4]

Does a Canceled Home Insurance Policy Stay on Your Record?

While there is no official record of your insurance history, homeowners insurance companies may be more likely to view you as high-risk if they find out that your coverage was previously canceled, according to Patti Yencho, owner of Professional Insurance Advisors.

“There isn’t a universal database accessible to all insurance companies where your insurance history is stored, but when you apply for a new insurance policy, you might be asked to disclose your insurance history, including any cancellations,” Yencho said in a message to SmartFinancial. “If a policy was canceled due to non-payment, some insurers might consider it a red flag for a certain period, which could affect premium rates or even the insurability of the homeowner.”

In addition, insurers can view your claims history from the past five to seven years via the Comprehensive Loss Underwriting Exchange (CLUE) database.^[5] As a result, even if an insurer doesn’t know why your previous policy ended, it may be able to see if you have filed a large number of homeowners insurance claims within a short period of time and adjust your home insurance quote accordingly.

Why Do Insurance Companies Typically Cancel Homeowners Insurance?

Common reasons for policy cancellation include failure to pay your premium, insurance fraud, breach of your insurance contract and physical changes to your property that affect its risk profile.^[6]

You should note that homeowners insurance companies typically have more leeway when it comes to nonrenewing your policy as opposed to canceling it.

For example, insurers in South Carolina can nonrenew your policy for any reason other than claims you’ve filed due to acts of God as long as they give you 60 days’ notice prior to the termination of your policy and tell you why your policy will not be renewed.^[6]

In general, your insurance carrier may decline to renew your policy due to actions you take such as filing too many claims or adding an attractive nuisance like a trampoline to your property. However, your policy could also be nonrenewed due to factors outside of your control. For example, some home insurance companies have nonrenewed all of their existing policies in certain states like California, Florida and Colorado due to an increase in the prevalence of natural disasters in those states, among other reasons.

What Should I Do if My Homeowners Insurance Is Canceled?

If you get a cancellation or nonrenewal notice from your home insurance company, you should ask your insurer if there is an easy fix. For example, if your policy lapsed because you missed a payment, many insurers offer a grace period lasting up to 30 days, during which you can make up your missed payment to get your policy reinstated.^[7] Alternatively, if you believe your policy has been canceled due to incorrect information or the cancellation is otherwise unwarranted, you could contact a lawyer or your state’s Insurance Department for further guidance.

However, if there is no way to preserve your current policy, then you should begin to shop around and compare home insurance quotes so you can find a new policy that will be cheaper than a force-placed policy purchased by your lender. Keep in mind that, depending on whether you were at fault for the cancellation, you could be viewed as high-risk and may have to shop for more expensive homeowners insurance policies from nonstandard insurance companies.

Several states have Fair Access to Insurance Requirements (FAIR) Plans or other government-established insurers of last resort that should be able to offer you coverage if you are struggling to find a policy on the private market. However, you should note that these policies tend to come with high price tags relative to the amount of coverage they provide.