Buying your dream home adds a large asset to your financial portfolio. It also comes with significant risk of loss. By purchasing homeowners insurance, you protect your pocketbook in case your home is damaged by fire or other disaster covered by your policy. But to buy or not buy isn't really a choice: All mortgage lenders require you to carry insurance coverage to protect their investment in your home. When you receive notice that your insurance is being canceled, you must fix whatever problem caused the cancellation or purchase new insurance.
Cancellation Vs. Nonrenewal
Your insurance company may stop coverage on your property in two ways: cancellation or nonrenewal. Cancellation occurs when the insurance company stops covering your property during the covered term. Most states limit when an insurance company can cancel your policy for any reason to 60 days. After 60 days, the company needs a good reason to drop you, such as nonpayment of a premium, fraudulent information or a substantial change to your property's risk assessment. Nonrenewal occurs at the end of your term when the insurance company decides it no longer wishes to do business with you.
Your insurance company must adhere to the state law regarding notification of cancellation. In most states, the insurance company must notify you 30 days before cancellation -- or 10 days in cases of nonpayment. The letter typically states the reason for cancellation or nonrenewal and the effective date. It may also tell you how to reinstate your policy if the situation is correctable, such as making the payment or fixing a problem with the property.
Purchase New Insurance
If your notice is not correctable, you must purchase new insurance. Depending on the reason for cancellation, this may be easier said than done. When the problems are with the house -- such as an increased risk on your property -- you may find insurance companies less likely to do business with you. You may face higher premium rates or flat-out denials of your application.
If your property or personal profile is considered high risk, you might qualify for a Fair Access to Insurance Requirements plan. FAIR plans are high-risk insurance plans that provide the bare minimum coverage. These plans are typically state-sponsored plans that cost a lot and cover little. Contact your insurance agency or your state insurance commissioner for information about your state's specific FAIR plan requirements.
Make sure you resolve the problems that caused the cancellation or find another insurer before your insurance lapses. Send your mortgage lender a copy of your new insurance declarations page after you purchase new insurance. All mortgage lenders require at least a minimum amount of homeowners insurance coverage for the life of the loan. When your insurance lapses, your mortgage lender steps in and covers you with force-placed insurance. Your lender chooses the amount of coverage and the insurance provider without your input and without regard to what it costs. The mortgage company adds the charge onto your monthly mortgage payment. Because your lender purchases the policy, you miss out on discounts for good credit history and multiple policy discounts.
File a Complaint
If you feel you were unfairly terminated or discriminated against, file a complaint with the insurance commissioner in your state. Your state's insurance official or agency reviews your complaint and works as an intermediary between you and the insurance company. If you were unlawfully terminated, your coverage may be reinstated. If you were discriminated against, the insurance commissioner may award damages to you.
- The Wall Street Journal: Getting Insurance Isn't Easy for Some Unlucky Homeowners
- The New York Times: Coping With High-Priced Insurance That Lenders Make You Buy
- Insure: FAIR Plans -- Home Insurance for "High Risk" Properties
- National Association of Insurance Commissioners: A Consumer's Guide to Home Insurance
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