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Understanding Homeowners Insurance Cancellation: Causes and Reasons

What Happens If Your Homeowners Insurance Is Canceled?

If your homeowners insurance is canceled, you will lose coverage for your home and its contents. This means you would pay out of pocket for any damages, losses, or liability claims that occur while you are without coverage. A lapse in coverage could also violate your mortgage requirements. 

However, having your insurance canceled does not mean you must permanently forfeit coverage. In fact, your current insurer may reinstate coverage if you make a payment or fix whatever caused a non-renewal. You may also shop for insurance elsewhere or look into a high-risk or FAIR plan if needed. 

Finding yourself with a canceled or non-renewed homeowners insurance policy can be incredibly stressful. You may have forgotten to send payment in or had an unexpected expense pop up this month that caused your insurance to be on the back burner. Your home may no longer qualify for the type of policy you have. Regardless of why your homeowner’s insurance is canceled — don’t worry. There are several options for you depending on the reason for cancellation. 

Avoid a Lapse In Coverage, Even If Your Policy Ends

It is ultimately best to maintain homeowners coverage even after your policies end, whether due to cancellation, expiration, or non-renewal. In case of fire, theft, natural disasters, or liability claims, your home, and wallet are protected by this crucial coverage.

According to the National Association of Insurance Commissioners (NAIC) report on homeowners’ insurance from 2012 to 2021, the United States experienced over 618 billion dollars in losses. This includes just catastrophes that affect a large population and not one-off claims like a fire. Statistics like these demonstrate the actual risks homeowners face and emphasize the need to continue coverage after a policy expires.

Homeowner’s insurance protects your most valuable asset, your home. Additionally, it protects you from liability lawsuits that you may find yourself a part of. If your homeowner’s policy is canceled, you may be financially devastated. You must maintain homeowner’s insurance to avoid being in massive debt due to a denied claim. 

You must understand why your policy was canceled and the steps you can take to obtain coverage again, which we will discuss next. 

Potential Mortgage Lender Consequences

Mortgage companies will require that you obtain and keep homeowner’s insurance for the life of your loan, at the very least. You typically cannot buy a home without providing proof of insurance. Your mortgage company will be listed on your policy and notified if it is canceled.

If your homeowner’s policy is canceled, your mortgage company can do force-placed insurance, which means they purchase a policy for you and then bill you. The negative side is that it will be much more expensive than your policy, and you have no control over it. 

Types of Cancellations Homeowners May Face 

You could receive a cancellation notice for your homeowner’s insurance policy for many reasons.

  • Cancellation during the binding period: Some insurance companies will bind your policy pending an inspection or underwriting review. If the insurance carrier does not like something found during the inspection, such as an old roof or woodstove, they can cancel the policy. 
  • Cancellation due to non-renewal: There are several reasons why your homeowners insurance company may decide not to renew your policy, including your claims history and your home’s condition. Each carrier will have specific criteria they want the homes they insure to meet, and you may no longer meet those.
  • Mid-term cancellation: There are also rare occasions where you may receive a cancellation in the middle of your policy period. This could be because you lied on an application or misrepresented something during the underwriting process. 

Reasons for Homeowners Insurance Cancellation or Non-renewal 

Now that you understand the types of cancellations you may receive, it is crucial to understand the reasons behind a cancellation. Once you understand the reason, you can move to rectify it. 

  • Payment issues: Understandably, sometimes, payments get missed for whatever reason. With prices rising on everything, you may be forced to choose between feeding your family or paying your insurance bill. Luckily, most insurance carriers typically give a grace period of 15-30 days. You may see a charge for late payments. 
  • Suspected misrepresentation or fraud: Committing insurance fraud or misrepresenting anything on an insurance application can cause a cancellation notice. And it does not always have to be intentional. Maybe you didn’t know that the roof is in bad condition. Or perhaps you made a claim for something you didn’t know was intentional damage. 
  • Your claims history: If you have had many or severe claims, that can impact your ability to have homeowners insurance. If the money paid to you by the insurance company starts to outweigh the premiums you have paid, they may cancel. This can be unfortunate for many homeowners as most claims are out of your control. 
  • Risky conditions or hazards: Sometimes, your home or where you live can present more risk than the insurance company initially thought. This could mean you live in a high crime area, or your home will cost much more to replace than the average home. 
  • Insurer leaving your home’s area: An insurer can sometimes pay out so much money due to catastrophic losses that they may stop offering insurance in an entire state. State Farm has stopped writing new homeowner’s insurance policies in California this year because of wildfires. Other carriers are doing the same, including Allstate. While Allstate may not cancel homeowner’s insurance policies just yet, it is possible. They will likely start sending out non-renewal notices for any existing policies they have in accordance with the cancellation notice laws in that state. 

What to Do After Your Home Insurance Is canceled 

Don’t stress for too long if you have found yourself dealing with a homeowner’s insurance cancellation. There are several ways that you can get coverage started again. While it is very troubling to be dealing with a lack of coverage on your most valuable asset, there are some steps you can take to get yourself and your family protected. 

1. Understand your policy’s cancellation, including why and when it goes into effect. 

The very first thing you want to do when you have determined that your homeowner’s policy has been canceled is to find out why and when it will happen. Each state has laws that require the insurance company to notify you promptly, usually 10-30 days in advance. Get a copy of the cancellation, providing the effective date and reason. 

2. Address the cancellation issue(s) and keep documentation to prove it. 

The next step is to address any issues that may have caused the cancelation. If you missed a payment, make that payment as soon as you can. It may also be a good idea to either pay in full or get set up for automatic payments. Be sure to talk to your insurer, though, because making a payment doesn’t guarantee coverage. You still want to pay anyway, as it will be on your record. 

If your policy was canceled due to an issue with your home, fix it if possible. While some cancellation reasons cannot be fixed, like if the insurer pulls out of your state, most can. 

3. Look up your state’s laws and regulations around home insurance. 

To understand the specific requirements and coverage options available, you should look up the laws and regulations surrounding home insurance in your state. In addition to ensuring compliance with legal obligations, it helps you make informed decisions when choosing insurance and clarifies your rights and responsibilities. Your state will have an insurance website where you can find this information. 

4. Shop for a new policy. 

If you don’t want to, or can’t, stay with your current insurer, then you can shop around for a new homeowner’s policy. Many insurance companies are available, so you shouldn’t have trouble finding coverage elsewhere. Ensure you have information about your home to obtain a quote, like your home’s construction information and claims history. 

It is best to shop around and obtain a policy before your current policy is canceled. You want to avoid a lapse in coverage as this looks bad to other insurers if you end up with one. Get multiple quotes so you can get the best policy for your situation. 

5. Be honest about why your previous coverage was canceled, but also provide information on what you are doing to avoid those pitfalls again. 

While hiding that another insurer is canceling you may be tempting, you want to be completely honest. Letting your prospective insurer know why you are being canceled and how you plan to prevent this will positively start the relationship. It will also avoid any future cancelations for misrepresentation. 

  • Payment issues: If you have a history of payment issues, you can tell the future insurer this but also offer to pay in full or set up automatic payments. A future insurer may require this of you anyway.
  • Suspected misrepresentation or fraud: If your current policy is being canceled for misrepresentation or fraud, you must have the evidence to show this is untrue. If it is, you will need to explain to your future insurer the reason behind your actions and what you plan to do in the future to avoid this issue again. 
  • Your claims history: While some claims cannot be helped, many can be avoided by taking care of your home and doing routine maintenance. Explain to your future insurance company the plan of action you have to reduce the risk your home presents based on your claims history. 
  • Risky conditions or hazards: Your current insurance company may have canceled your policy because of risky conditions that either your home presents or the area you live does. Your future insurer will want to know that if your home is at higher risk, you have a plan to reduce the risk. If you live in a high-risk area, you may need to look for a specialized insurance company for your area. 
  • Insurer leaving your home’s area: Because the insurance company is leaving your area or state, there is not much explaining you will have to do to the future insurer. They will surely sympathize with your position, so just shop for a company still doing business in your area. 

6. Consider a high-risk policy or FAIR Plan if necessary. 

Due to your home being damaged and unable to make repairs, the frequency of claims, or living in a high-risk area, you may need to look for high-risk insurance. High-risk insurance is a particular policy that covers high-risk properties. 

High-risk Home Insurance 

High-risk home insurance is available to those homeowners who need it due to severe claims or living in an area that has experienced a lot of loss. If you are having difficulty getting insurance, you can find information about these types of carriers in your area from your state’s insurance department. You will likely have to pay higher premiums than you currently do, but it is a small price to pay to protect your home.

FAIR Plan 

A FAIR plan, also known as a Fair Access to Insurance Requirements plan, provides insurance coverage to individuals and businesses who cannot get regular insurance due to being in a high-risk area or having a lot of claims. Each state manages its own.  You should only look into a FAIR plan if you can’t obtain insurance otherwise because they provide very basic coverage and is quite expensive.

Tips On Preventing Future Cancellations

Understandably, sometimes you may be in an unfortunate situation where your homeowner’s policy is canceled or non-renewed. If that is the case, you must prevent any future cancellations once you have obtained insurance again. To do this, practice these steps:

  • Maintain your property regularly. One of the easiest things you can do to prevent homeowner’s insurance cancellation is to maintain your property. Keep your grass cut, trim any overgrown trees or shrubs, fix cracks in your sidewalk, and check your roof and siding periodically, making repairs as needed. 
  • Practice risk management. Prepare yourself for any claims that could arise. Have a disaster kit ready if you live in a high-risk area. Keep items on hand to make minor repairs. Consider installing smart alarms for fire and burglars. 
  • Manage your claims. While insurance is there for you to be able to make claims and be reimbursed for repairs and replacements, consider when to make a claim. Sometimes, a claim will only cost a little bit more than your deductible, so it may not be worth filing. If you have too many claims, the insurer may look to cancel you, so it is vital to keep them low. 
  • Review your policy regularly. Monitor your coverages, deductible, premiums, and policy language. Understand what could lead to a cancellation. Make changes to your policy as needed. 

What This Means For You

A homeowner’s insurance policy cancellation, while serious, is not the end of the world. It can be worrisome, but you have many options to either get the cancellation rescinded or obtain coverage elsewhere. Regardless of the reason for cancellation, most things can be fixed, or you can simply shop for other coverage. Still, try to avoid a home policy cancellation if you can.  

Frequently Asked Questions 

An insurance company can’t cancel your homeowner’s policy without reason. There are insurance laws and regulations in place that each insurer must follow, so you must familiarize yourself with the laws in your state. 

When you receive a cancellation notice, you should review it to learn the effective date and reason why. Then you should do what you can to rectify anything to try to get it reversed. If that is not an option, start shopping for new insurance immediately. 

While there is no way to say one way or the other, your premiums may go up. Depending on the reason for cancelation, your future insurer may consider you a high-risk insured for now. However, if you show that you will avoid cancelation in the future your premiums could go back down. 

You do not want to find yourself uninsured, so you should try to get insurance before the effective date of the cancellation. Most insurers will give you notice at least 10 days before cancellation, depending on the laws in your state.