What Can Happen If I Let My Homeowners Insurance Lapse?

There's a long list of reasons your home should be covered by a quality homeowners insurance policy, besides the fact that it's absolutely required by your mortgage lender. Even if you own your home outright and have no mortgage, not having a good home owners insurance policy in force could be a huge mistake on your part. This is because all of the financial protection that comes with homeowners insurance isn't available to you without a policy, just as these protections disappear as soon as a covered individual allows his or her policy to lapse. Typical home owner coverage includes protection against:

• Financial loss from damage caused by things like fire, extreme weather, vandalism or from theft of your possessions.
• Liability claims if someone becomes injured while at your home. Financial liability can include payments for medical costs, rehabilitation costs, attorney's fees, court costs and more.

The Costs of Letting Your Homeowners Coverage Lapse

If you allow your homeowners insurance to lapse, either by non-payment of your premium or through cancellation of the policy by your insurer, you run the risk of being on the hook for any damage caused to your home or for any liability claims arising from someone being injured while on your property.

If you have a mortgage for the home you previously agreed to maintain a specific minimum amount of insurance coverage in order to protect your mortgage company's interests should something happen to the home. If you fail to meet this obligation by allowing your insurance to lapse, for whatever reason, you'll be in default of this agreement, which will prompt your mortgage lender to take immediate action in order to cover their financial exposure. They will typically purchase insurance on your behalf – something called force-placed insurance – and roll the cost into your monthly mortgage payment amount. This force-placed coverage will, in most instances, be more expensive than your original policy and the coverage will be likely less advantageous to you in its benefits.

Replacing Your Coverage

Another negative aspect of letting your home owner policy lapse is that finding replacement insurance may be difficult and, in almost all cases, the replacement coverage will carry higher premiums than the coverage you let lapse. This is because, to your insurance company, you've become a higher than standard risk and may appear financially unstable. Lapsed insurance is a bad deal all around. Avoid it at all costs.