Homeowners need not face the prospect of losing insurance coverage on their biggest asset. Home insurance policies, typically called homeowners coverage, contain clauses in the “fine print” that detail how and under what conditions the coverage will end. Most of the situations are easily preventable and clearly stated in the policy. Anyone who owns a home should know how to avoid falling into the dangerous situation of being without home insurance coverage.
A common misconception about homeowner’s insurance resolves around whether the coverage is mandatory or not. It isn’t. There is no law that requires a homeowner to obtain coverage on property or structures. However, if you finance your home purchase, the bank will not finance the mortgage unless you sign an agreement stating that you will get and maintain coverage on the house.
What happens if you buy coverage and either let it lapse or have it terminated? Actually, there are several ways your home insurance can expire, and it’s important you know all of the angles. Most lenders will do one of two things. They’ll either find you in violation of the mortgage and foreclose on the property, which is rare. Or, more likely, they’ll purchase homeowner’s insurance themselves and charge you for in via higher monthly payments. Forced coverage is usually much pricier than a policy you could get on your own. That’s why it behooves owners to never let their policies lapse.
Keep Your Coverage
There are several ways to lose your homeowners coverage. The most common way is for the insurer to refuse renewal when the original policy expires. Why does this happen? If you make claims against the policy, insurers might label you a “high risk” owner and refuse to renew.
Another way people lose coverage is through carelessness. If you receive a termination letter from your insurer, you generally have 30 days to find new insurance or replace the policy with the same insurer. When the period is up, you no longer have coverage. Worse, it’s now harder to obtain because you have a “policy lapse.” Keep in mind that allowing a policy to lapse can mean foreclosure because lenders require coverage for hazards.
If you are diligent and understand how the insurers operate, there’s really no reason to ever lose homeowners coverage. Even for people who fall into the high-risk category, there are agencies who will write policies. Premiums are typically higher in situations like these and the coverage itself is often scant, but it’s enough to meet the requirements of most mortgage contracts.
It doesn’t hurt to keep a close eye on your “comprehensive loss underwriting exchange” summary, also known as a CLUE report. Your entire insurance claims history is delineated in the CLUE, which insurers use to set your homeowners insurance rates and terms. If your rate of claims is unusually high, it might be nearly impossible to obtain traditional homeowners’ coverage at normal rates. Your mortgage lender or real estate agent can help you obtain a free copy of your CLUE report. It makes sense to check out the summary in your CLUE at least once per year to make sure there are no errors or changes to your risk assessment.