If you receive a homeowners insurance cancellation notice, it’s important to understand why your policy was canceled and how long you have to address the issue. Each state has its own window in which you can either appeal the decision or shop for a new policy, so prepare to take action as soon as you receive your notice.
Here’s everything you need to know about how to handle a cancellation notice and what your rights are every step of the way.
First steps after a home insurance cancellation notice
The first step to take after receiving a home insurance cancellation notice is to call your insurance company and try to resolve the issue. There could be a simple solution, depending on why the cancellation occurred.
Insurance companies can usually only cancel a policy during its term for a few specific reasons. For instance, your homeowners policy may be canceled if you missed a premium payment. But if you call and catch up on your outstanding balance, you may be able to keep your policy.
No matter what the notice says, start by getting more details on the reason behind the cancellation. That helps you understand whether there’s a way to reinstate your current policy or if you need to explore other options to insure your home.
The difference between being canceled vs. nonrenewed
Having your homeowners insurance policy canceled is different from having the company decide not to renew it. Getting a cancellation notice means your insurance company intends to terminate your policy before the term has expired.
In many states, there are only a few reasons a homeowners policy can be canceled after the first 60 days of the policy, including:
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Nonpayment of premium.
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Insurance fraud.
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A substantial change in risk.
Most states require insurers to list the specific reason for cancellation in the notice.
A nonrenewal notice, on the other hand, is sent when your policy is up for renewal and the insurance company chooses not to continue your coverage. Each state has its own notice period to give you time to find out why your policy wasn’t renewed and to shop around for a new one.
Like with cancellations, most states also require insurers to explain why they’re not renewing a policy. Some of the most common reasons for nonrenewal include:
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Your house no longer meets your insurer’s underwriting guidelines.
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You’ve filed too many claims. (This usually doesn’t include catastrophe claims. Many states have laws that stop insurers from using catastrophe claims against you.)
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The insurance company no longer provides insurance coverage in your location.
As with a cancellation, you can call your insurance company after being notified of a nonrenewal to see if there are any issues you can address.
Why would an insurance company cancel your home insurance policy?
There are restrictions on the reasons why an insurance company can cancel your homeowners policy before it expires. The first, and possibly most common, is nonpayment of the premium.
Nonpayment can be an easy problem to fix. Usually, it’s just a matter of contacting your insurer and paying your past due premium.
However, homeowners who pay their premium through their mortgage escrow account may need to reach out to their lender to get the issue straightened out. If your policy is canceled because your mortgage lender failed to pay the premium, then your lender is required to contact your insurance company to get the policy reinstated or find another policy for you. Just remember that you’re still required to make your mortgage payments to stay current on your home loan. That also includes money going towards your escrow account.
Another reason for cancellation is insurance fraud. Soft fraud is the most common type of homeowners insurance fraud, and it’s usually committed in one of two ways:
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The policyholder omits information or lies on an application to get a lower premium.
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A legitimate claim occurs, but the policyholder exaggerates the damage to receive a higher payout.
If any type of fraud is suspected, the insurance company can cancel your policy.
Finally, your insurance provider may cancel your policy if there is a substantial change in the risk your property faces. For example, if your insurer discovers that your home is vacant for longer than what your policy allows, it may decide to cancel your coverage.
Home insurance companies often find changes in your risk profile during the underwriting discovery period. The discovery period is a stretch of time where insurers can look more closely at the home’s risk factors like age, condition, location, and claims history. If the house is deemed too risky in any of these categories, the insurance company can cancel the policy.
How long an insurance company’s underwriting team can investigate a risk varies by state, but it usually ranges from 30 to 120 days.
What will your mortgage company do if your home insurance is canceled?
Your mortgage company likely requires you to have home insurance, so you want to get a new policy as soon as possible. Otherwise, your lender will get force-placed insurance for your house.
Also called lender-placed insurance, a force-placed insurance policy is coverage you pay for that protects the mortgage company’s financial stake in your home. Force-placed insurance usually provides less coverage at a higher premium than standard home insurance, so it’s a situation you want to avoid if possible.
Can an insurance company cancel your policy without notice?
Home insurance companies generally have to give you written notice before a cancellation goes into effect. This time frame, like the discovery period, is based on state law, so it varies by location. The reason for the cancellation and how long the policy has been in effect can also come into play.
Providing notice gives you an opportunity to try to work with your insurer to resolve the issue or to shop for a new policy.
Can you still get home insurance after being dropped from your insurer?
You can still get home insurance after being dropped, but it’s best to start exploring your options quickly. Most lenders require homeowners insurance if you have a mortgage or home equity loan. Plus, not having coverage, even for just a brief time, means any loss falls on your shoulders.
Start by shopping around for insurance providers that are active in your state. You can find this information from your state’s insurance department. If you have trouble finding coverage, you can also explore your state’s Fair Access to Insurance Requirements (FAIR) plans. However, it’s more expensive than traditional insurance and typically only provides basic coverage from catastrophes.
When you find out your homeowners insurance policy is canceled, the biggest takeaway is to act quickly in order to give yourself the most choices. There are multiple solutions out there, so take the time to find the one that is right for you.
