What Happens When Your Homeowners Insurance Lapses?

by Stephanie Rutherford-Scott
It's important to stay current on your homeowners insurance to keep your property protected.

Homeowners insurance is one of those things that you think you’ll never need -- until you need it. If your homeowners insurance lapses, your home and possessions will be left unprotected against property damage, theft and personal liability. In addition, allowing your homeowners insurance to lapse may affect your ability to be insured in the future.

Grace Period

Life happens and bills can slip through the cracks. If you miss a scheduled payment for your homeowners insurance, most carriers offer a grace period to catch up on payments, without a lapse in coverage. The grace period for homeowners insurance is typically 10 days after the premium’s due date. Most major homeowners insurance carriers accept phone or online payments that can be posted on the last day of your grace period.

Policy Cancellations

If you exceed your grace period, your insurance company has the right to terminate your policy. Once a policy is inactive, it is completely null and void. That means your home and possessions are not protected from damage or theft.

Risk and Liability

When your homeowners insurance lapses, you're left financially vulnerable to the costs of fire, damage and theft at your home and property.Without homeowners insurance, you will also become liable for any medical expenses incurred if a person is accidentally injured at your home or property. Some examples of what your homeowners liability insurance covers includes slip and fall accidents, dog bites and animal attacks, or accidental discharge of firearms.

Escrow Accounts and Bank Failure

Many homeowners are required by their mortgage company to obtain homeowners insurance as part of their loan agreement. These payments are made through an escrow account, which you fund. Your lender is legally required to make timely and regular automated payments to your homeowners insurance carrier from your escrow account. If your mortgage lender does not pay the policy and it is cancelled, the U.S. Office of the Comptroller of Currency's regulations state that your bank is responsible for either reinstating your policy or securing a new policy with another insurer.

Reapplying for Coverage

If you’ve let your coverage lapse, you will likely need to reapply for a new policy. Some carriers may allow a policy to be reinstated under the same terms and premium cost, but they are under no legal obligation to do so. An insurance carrier’s underwriting department could use the policy termination as a strike against you and deem you a higher risk to insure. This could negatively affect your policy premiums and terms.

Finding a New Insurer

If there’s a lapse in your homeowners insurance policy and no premium payment has been made for 45 days, it won’t just affect your ability to be insured with your current company -- it can also make other carriers reluctant to take you on. Having a history of payment problems can put you in the “high risk” category and you’ll pay much higher premiums, if you’re able to be insured at all.

Keeping Current

If you have trouble remembering to pay your homeowners insurance premium, you should consider enrolling in an automated payment system, so you’ll never forget to send a payment. If money issues are keeping you from paying your premium, it doesn’t hurt to shop around to other providers for a better rate. As long as you stay current on your premiums, it’s easy to switch providers to get cheaper rates.

About the Author

Stephanie Rutherford-Scott has more than 10 years of experience in print and multimedia journalism for Booth and Gannett Corp. Her work has been published by the Associated Press and Gannett News Service in news publications throughout Michigan and the United States. She received her Bachelor of Arts in creative writing and journalism from Western Michigan University.

Photo Credits

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