What Happens When Your Homeowners Insurance Lapses?
Homeowners insurance is a must-have for homeowners with a mortgage. This type of coverage provides protection against financial loss for the mortgage holder if something happens to damage or destroy the dwelling. Almost all mortgage lenders, in fact, require their mortgage holders to obtain and keep current a minimum specified amount of home insurance protection as a condition to their providing and maintaining a home loan.
Homeowners insurance also protects you against financial loss from a long list of potential perils, including fire, theft, vandalism, hail or wind storm damage, civil unrest and more. Most homeowner policies also provide financial loss protection stemming from cases of liability. If you are sued for injuries suffered by a visitor to your home and negligence is charged, good quality homeowners insurance will help pay legal costs, lawyer’s fees and medical expenses for the injured party.
Keep it Current
Letting your homeowners insurance lapse, even for just a single day, is a huge gamble. The consequences could be disastrous. For whatever reason a policy is allowed to lapse, whether it’s an oversight on your part in letting the premium go unpaid or your insurance company cancels your policy for some reason, the only solution is to immediately get the existing policy reinstated, if possible, or to get a new one.
If neither of these options occurs and you have a mortgage on your home, your mortgage company will likely take out an insurance policy on the home for you. They need to protect their own financial interest in the home and your original agreement with them most likely called for your keeping continuous coverage on the property and also gave them the right to take out insurance if your policy was to ever lapse. They will take out something known as force-placed insurance, which they’ll pay for by tapping your mortgage escrow account. This will increase the amount of your previous mortgage payments and will likely provide you with a homeowners insurance policy that is more expensive and of lesser quality than the one you had before.
Letting your insurance lapse indicates that you are a higher insurance risk. If your current insurer refuses to reinstate your lapsed policy, finding new coverage may be difficult and expensive. If damage or destruction happens to the house while you’re not covered, the loss will fall totally on your shoulders. It’s not worth the risk!