My Home Insurance Got Cancelled - What to Expect with a Lapse in Coverage

puzzle of color white with one missing pieceWhat Happens When My Home Insurance Cancels, Lapses, or Non-Renews?

Whether you’ve fallen behind on bills or simply missed your renewal letter in the mail, a lapse in home insurance coverage can happen. Whatever the reason, a lapse in coverage can lead to a series of headaches and penalties that no one is ever prepared for. Here's what to expect when your home insurance coverage lapses and how to avoid it.

What is a lapse in coverage?

A home insurance lapse occurs when you go without coverage for any length of time. Whether you are one month behind or one day behind, your lender will be notified that your home wasn’t covered by your insurance company. 

There are a number of ways that your insurance policy can lapse, but the most common are

  • A missed payment
  • Your home insurance policy expires
  • Your insurance company cancels your policy in the first 90 days (underwriting)
  • A clerical error (oops)

While these aren’t the only reasons that can cause your home insurance policy to lapse, these can be easily resolved by making a payment, purchasing a new policy, or simply making a phone call to your insurance company for other options.

What is my exposure without insurance coverage?

Home insurance claims are more frequent than you think, and are large.

  Claims Filed Each Year Avg Cost of Damages
Wind and Hail 1 in 42 homes $8,625
Water Damage and Freezing 1 in 50 homes $9,633
All Other Property Damage 1 in 135 homes $5,052
Theft 1 in 270 homes $4,146
Fire and Lightning 1 in 323 homes $50,315
Bodily Injury/Property Damage 1 in 1,111 homes $23,010
Medical Payments 1 in 2,500 homes $2,864
Dog Bites 1 in 3,250 homes $37,051
Credit Card Theft 1 in 10,000 homes $441
All Homeowners Claims 1 in 19 homes $11,666

You are liable for any claims during the time of lapse

Because you are not covered, you are responsible for any damage or loss claims during your loss of coverage. And when you go to get your new policy, the carrier will NOT cover any damage that's source originated from the lapse period. A fun example:

You are out on vacation and miss your payment on your policy, causing it to cancel on May 1st. When you get back from vacation on May 6th, you immediately buy a new policy. and have a lapse of coverage May 1 - May 5.  

On May 7th after being back for a day, you walk down to your basement to watch a movie. WHATS THAT SMELL?? Your hot water heater leaked while you were away and the carpet is soaked. Something is growing.

You immediately report it to your new insurance company. Although the claim was "discovered" on May 7th, it is noted that the leak most likely burst during a cold spell that hit your city on May 5th, two days earlier. You were without coverage on this day, so your claim is DENIED.

blinking sex and the city GIF

This logic would also apply to those hurt or injured on your property. If someone slips and falls in your driveway, you could be responsible for medical bills and a lawsuit related to their injuries.

Your Rates May Increase

When you let your insurance lapses once, even for a day, you are considered a higher-risk homeowner. To insurance companies, a lapse in your coverage can signify that you are less financially responsible. Expect your rates to go up. Additionally, there is added risk that they will have to cover something that happened during the lapse if it is not as clear cut as the example above. 

Your lender may force home insurance coverage

In order to protect their assets, lenders set requirements for homeowners insurance coverage. When your coverage lapses, your insurance company sends a letter to your mortgage lender letting them know that your home is no longer covered. Your lender then has a right to purchase coverage for you and pay for it using your home’s escrow. 

According to the National Association of Insurance Commissioners, this coverage is purchased at a much higher rate than you could find on your own and often covers a lot less than your original policy.

How can I obtain homeowners insurance after my coverage has lapsed?

If your homeowner's insurance has previously lapsed and you’re in the market for new coverage, all is not lost. Follow the following 5 easy steps to get coverage back on the books:

  1. Call your most recent insurance company to see if they will reinstate coverage.
  2. Ask about any discounts for bundling your home, auto, and life insurance policies. These discounts may help offset the rate increase from your home insurance lapse. 
  3. Request a home inspection by your insurance provider to ensure that any future claims won’t be denied over suspicions that damage occurred during the lapse. 
  4. Check Young Alfred to compare home insurance rates from over 25 insurance carriers online.
  5. Be ready to sign a Statement of No Loss to makes you responsible for any losses during the lapsed period

Best rule of thumb is don't let your policy lapse! But if you don't, it isn't the end of the world, just be expecting to pay a little more for your first year of coverage. 

At your service,
Young Alfred