Homeowners Insurance Lapse: What Happens If There's a Gap in Coverage

Homeowner’s insurance is important whether you have a mortgage or you’ve paid off your house. This type of insurance protects your home from different perils like theft, fire, and natural disaster. 

Premiums are often paid with the monthly mortgage payment, if you’re financing your house. Or, you can send payments to your insurance company if you’ve paid off your loan. 

But:

Homeowner’s insurance only offers protection for as long as you pay your premium.

So if you stop making your payments — or if your insurer cancels your policy — this causes a lapse in coverage. 

What are your options after a gap in coverage?

Here’s what you need to know about lapsing on your homeowner’s insurance, as well as ways to avoid loss of coverage.

What is a Homeowner’s Insurance Lapse?

A lapse in homeowner’s insurance is a period where you stop making your insurance payments. 

Going without coverage for any length of time is considered a lapse.

But since most people pay homeowner’s insurance with their mortgage payment, you might ask: how does a lapse happen?

What Causes a Lapse in Coverage?

If you own your home outright, your insurance can lapse if you fail to pay premiums to your insurance provider.

After missing a payment, many insurance companies give their customers a 30-day grace period.

If you don’t pay by the end of this grace period, they’ll cancel your coverage.

Keep in mind:

If you have a mortgage, keep in mind that you’re not required to pay homeowner’s insurance with your mortgage payment. Many homeowners choose this out of convenience. But there’s the option to make premiums to your insurance provider. So if you stop paying your premium, this also causes a lapse in coverage.

Whether you have a mortgage or a paid-off house, your homeowner’s insurance company can cancel your policy for other reasons, too.

For example:

1. You lied on your insurance application 

Home insurance companies can cancel a policy for various reasons, including lying on your application.

You might state that your property has certain security features. This allows you to qualify for an insurance discount.

Or, you might state that you don’t own a pet. If your homeowner’s insurance company conducts an inspection and finds out that you lied, they can drop your coverage.

2. You haven’t maintained the property

A homeowner’s insurance inspection might conclude that the home is in poor condition.

You might have fire hazards on the property, or certain parts of your home might be unsafe. 

Your company will allow a certain amount of time to correct these issues. If you don’t comply, they can cancel your policy.

3. You’re too risky to insure

Additionally, your insurer might cancel your policy if your risk level increases.

Some home insurance companies have restrictions on certain dog breeds. If you get a dog on their restricted list, they may cancel your policy. In which case, you’ll have to find another provider.

Your insurance company may also cancel your policy if you file too many claims.

Yes:

Insurance is for your protection.

But a lot of claims within a short time span indicates too many risks in your home.

What Happens If There’s a Lapse in Coverage?

It’s important to avoid any lapses in coverage. Your property is your biggest asset. So it can be costly to fix repairs or damages from fire or natural disaster. 

Without insurance, you would have to pay for repairs out of your own funds. Homeowner’s insurance, on the other hand, protects your investment and alleviates some of the financial burden.

When you still have a mortgage

Mortgage lenders often require borrowers to have homeowner’s insurance. They have to protect their investment, too. 

So if you allow your homeowner’s insurance to lapse and you don’t reinstate your coverage or purchase another policy, your mortgage company will purchase insurance on your behalf. 

Your mortgage payment will then increase to compensate for this added expense. Your lender will pay premiums via your escrow account. 

But while this is an option, it’s more expensive to have your mortgage company buy insurance for you.

More difficult/expensive to get coverage in the future

Another reason why you shouldn’t allow a lapse in coverage is that it becomes harder to get future insurance. 

If another insurance company discovers a previous gap in coverage, or learns a provider dropped your coverage, you’re deemed a risky applicant. 

This isn’t to say you can’t get future coverage, but you’ll pay more for it.

How to Avoid a Lapse in Coverage

The best way to avoid a lapse in homeowner’s insurance is to pay your premiums on time. 

If you experience a hardship that prevents making a payment, call your insurance company immediately. See if you can get a payment extension. Or, your agent might make adjustments to your policy to lower your premium.

Also, don’t do anything that will increase your risk level. The higher your risk, the greater the likelihood of having your policy canceled. 

Before getting a certain breed of dog or a trampoline, contact your agent to see whether this decision could impact your coverage. It also helps to be as transparent and honest as possible when getting a policy. 

Some insurance companies will conduct inspections. So if you misrepresent anything on your insurance application, they’ll likely find out.

The good news:

Many insurance companies give policyholders time to correct issues that trigger a cancellation of their policy. You can protect your policy by acting quickly and making improvements to your home.

What to Do If Your Policy Has Already Lapse?

If your home insurance policy has lapsed due to unpaid premiums or cancellation, contact your agent to ask about reinstatement policies. 

Sometimes, the company will reinstate your policy if you pay past-due premiums within a certain amount of time.

The sooner you act, the better.

If you need a cheaper premium, talk to your agent about discounts.

Typically, you can save money by bundling your insurance and getting multiple policies with the same company.

In addition to having homeowner’s insurance with your provider, you can also get auto insurance or life insurance through them.

Reinstatement

Even after canceling your policy, your insurance provider might offer reinstatement if you take steps to minimize your risk.

Your agent can provide suggestions on how to make your property safer, thus insurable.

Keep in mind, some insurance is better than nothing.

So if your insurer cancels your policy, you’ll need to look into high-risk insurance options.

Fair Access to Insurance Requirements plans (FAIR) are one alternative. Just know that you’ll pay a higher premium due to your higher risk.

Tips for Managing Homeowners Insurance

Here are a few tips to keep your homeowner’s insurance policy in good standing:

• Only file a claim when absolutely necessary. Even though homeowner’s insurance protects against damage, filing too many claims can cause a provider to drop your coverage. For minor damage to your property, see if it’s feasible to pay repairs out-of-pocket.

• Take photos of your property. Your insurance company may inspect the property before finalizing the policy. To avoid having your policy canceled upon inspection, take photos or video of the property for your records. This documents the property’s condition at the time of application.

• Keep your property in good condition. Properly maintaining your property over the years can also reduce the likelihood of having your policy canceled.

• Don’t let the policy lapse. Having your homeowner’s insurance policy lapse for even a single day can trigger higher insurance rates.

• Compare high-risk insurance plans. If you’ve had your policy dropped and you need a high-risk policy, always compare plans with different insurance companies. This can help you find the best price.

• Never ignore a cancellation letter from your insurance provider. Often times, you can keep your policy by addressing your insurer’s concerns. Contact your company and get advice on how to keep your policy current.

• Don’t let your mortgage company purchase your insurance. If your mortgage company purchases a policy for you, you’ll have limited coverage. Although more expensive, these policies might only protect the actual structure, and not your personal property. These policies might also exclude other benefits like loss of use coverage.

Conclusion

Homeowner’s insurance is crucial, as it protects your most valuable asset. Theft, fire, or natural disaster can result in costly damages. Without a policy, you’re responsible for the financial loss. 

It’s not only important to have homeowner’s insurance, though. It’s also important to keep your insurance.

Always pay your premiums on time and consult your provider if you run into financial hardship.

A lapse in coverage is risky and can increase your insurance cost.