What happens to my mortgage if my homeowners policy gets cancelled?
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As more and more insurance companies stop writing policies in certain markets or cancel existing policyholders they find too big of a risk, homeowners are finding their policies cancelled or non renewed. While a cancelled policy is a shock, it doesn’t mean you need to panic.
Following is a brief overview of what to do if your homeowners insurance policy has been cancelled or non-renewed by your current insurer.
Reasons your policy could be cancelled or not renewed
There are a number of reasons your insurer may cancel or non renew your policy. In some cases, you may be able to get your coverage reinstated and in other scenarios you may need to find a new policy. Here are some of the most common reasons for cancellation or non-renewal:
- Non-payment of premium: If you don’t pay your premium on time your coverage will lapse after a specific grace period and then your insurer may cancel your policy. In many cases, this is easy to reverse, simply pay your insurance premium and your insurance company should reinstate your coverage.
- Misrepresentation on application: Insurance companies will cancel your policy if you lied or omitted information from your policy and they become aware of the deception. Always be truthful on an insurance policy application.
- Condition of your home: Insurers will often inspect your home before issuing or renewing a policy. If your home presents risks they were not aware of you may have to fix the issue or they may cancel your policy.
- Bankruptcy: Numerous insurance companies in Florida have gone under in recent years so it is not unthinkable that your insurer could go bankrupt. If this happens your policy will be canceled.
In addition to cancellation, it is also possible that your insurer will decide not to renew your policy when your policy renewal comes up. This can happen for a number of reasons, your claim history, changes in your risk factors or your insurer may decide to stop writing coverage in the region your house is located.
Your mortgage lender has rights
If you own your home outright, you are not legally required to carry homeowners insurance but it is usually a bad idea to go without coverage.
If, like most of us, you have a mortgage on your home, your lender will require that you carry homeowners insurance. This protects their investment in your home until you have paid off the mortgage.
If your homeowners policy is cancelled your lender will require that you put a new policy in place. If you fail to do so or your lender doesn’t feel the policy offers enough protection, they can legally put a policy in place and charge you for the premiums. This is called a force placed or lender-placed, insurance policy. In almost all cases, this coverage will cost more than a policy you purchase on your own in the private market.
What you should do if your policy Is Canceled
There are a number of things you can do if your homeowners policy is cancelled. Here are a few ways to avoid being without coverage for long.
Notify your mortgage lender: Once you receive a notice of cancellation or non-renewal from your insurer, notify your mortgage lender to explain what has happened and how you plan on getting new coverage.
Talk to your current insurer: If you were happy with your current insurer, you should contact them and see if there is a way to get your policy reinstated. This may require upgrading or updating aspects of your home or possibly clearing brush or trees which could be an increased fire risk. In most cases your insurance company will want to inspect the changes before reapproving coverage.
Shop Around: If your current insurer has moved on for good, it’s time to start shopping your coverage. It is important that you do this as soon as possible to ensure you have a new policy in place before your previous coverage expires.
Gather quotes from a wide variety of insurers and always make sure you are comparing apples to apples when it comes to coverage levels and deductibles. Shop both national and regional carriers and if you cannot find coverage in the private market, you may have to consider the insurer of last resort which is typically run by the state.
Do I Need to inform new insurer about cancellation?
Yes, you need to be truthful on any insurance application which means that you will need to report that your previous policy was cancelled as well as the reason why if you are asked during the application process.
Is it possible to contest a cancellation?
If you feel you have been treated unfairly or the cancellation is not justified, you can certainly appeal the decision with your insurer or contact your state insurance department to file a complaint. If your insurer is no longer writing coverage in the area there is usually no recourse, and you will need to find a new insurance company.
Can I make home improvements to get my insurer to renew my policy?
Depending on why your policy is being cancelled or non-renewed you may be able to make changes to your home which may convince your insurer to renew.
As an example, if your insurer is concerned about fire risk, clearing some trees and shrubs near your home could result in a renewal. Ask your current insurer why your policy is not being renewed and if there is anything you can do to your home to get your coverage renewed.