What Happens When Your Homeowners Insurance Lapses?

Financial times get tough for just about everybody at one time or another. The car might need new tires, the baby might need new shoes and the cat might need braces. Well, that last one is a bit of a stretch, but one item you shouldn't put off paying is your homeowners insurance premium. If your coverage lapses due to nonpayment, the consequences can be severe.

Paying for Repairs

If your homeowners insurance coverage lapses, you'll be left unprotected against damages to your property. Whether something relatively minor like a small roof leak or more costly like a major house fire occurs, you'll have to pay the entire cost of repairs or replacement out of your own pocket. Even if your home burns to the ground, your obligation to pay off your mortgage will not go away.

Liability Risk

Even if nothing bad happens to your property, it doesn't mean that you're off the hook. If a passerby trips and is injured while on your property or your dog bites the mailman, you could be sued for the damages. One key component of a homeowners insurance policy is the liability protection it provides, which you will no longer have if your policy lapses.

Unhappy Lienholder

If your home is mortgaged, the bank or other financial institution that loaned you the money has a say as to your homeowners insurance. By entering into a mortgage agreement, you create a situation where the lender has a lien, which is a legal claim against your property. If you don't have an active homeowners insurance policy with coverage that is deemed acceptable by the lienholder, you can be considered in default on the loan and even lose your property through foreclosure. Alternately, the mortgage company may inform you they are adding insurance coverage for their protection, and the premiums, generally not at the best price available, will be added to your monthly payment.

Finding New Insurer

Depending on your insurance company, you may be granted a certain period of time where it will consider reinstating the policy if all back premiums are paid. Of course, you'll be without the coverage during this time, and there's no guarantee that the company will agree to take you back even if you pay up. If your claims history is poor or if you have had a series of payment problems, your company may bid you a not-so-fond farewell. You'll be left to find coverage elsewhere, which will likely be more expensive due to your past problems.