What Happens When Your Homeowners Insurance Lapses?
Unless you’re rich and you could easily afford rebuilding your property in the event it’s completely destroyed, you should never let your homeowner’s insurance lapse. If you do, then you won’t be financially protected anymore if your home is damaged. Furthermore, failing to renew the policy or pay the premiums on time will again result in a lapse. Therefore, it’s very important that you keep your insurance policy in place and pay the premiums every month.
Financial Risk
If you fail to pay the premiums, then this means that you won’t be able to file a claim anymore if your home is damaged in any way, including getting burglarized or catching fire. So if such a loss occurs, you’ll assume full financial responsibility for it. On the other hand, your property may also be a total loss due to various types of catastrophes and in this case it’s obvious the financial loss is extremely high. If you let your homeowners policy lapse, then you’re putting yourself at risk of having to pay thousands, tens of thousands or even millions of dollars based on your insured possessions and property value.
Liability
If your insurance lapses, this will also lead to a loss of liability coverage for every person on your property. The medical bills (for everyone injured on your property when it’s your fault) are covered by the insurance. When it comes to the legal costs though, they’re paid for by the liability coverage (only if you’re sued by the other party). However, if the policy lapses, then you’ll be responsible for paying for every type of damage that occurred on your property.
Force-Placed Insurance
The requirements for the homeowners insurance are usually set by the mortgaged home’s lender. If the insurance lapses though, the lien holder will receive a letter from the insurance company to notify him about it. In order to protect the company’s interest, the mortgage company can buy a policy for the home in order to protect it’s interest and then pay for that using the homeowner’s escrow. However, it’s important to note that this type of force placed insurance is a bit more expensive compared to a policy that is usually purchased by the homeowner. In terms of coverage, this policy offers less coverage than an original policy.
Replacement Insurance Difficulty
If a homeowner wants to buy new insurance, insurers will be fully aware of he has lapsed in the past. As a result, he’s seen as a financially unstable client and may or may not be accepted as a client by the insurance company. If he is, then the premiums will most certainly be higher.
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