Tips & AdviceCan Your Homeowners Insurance Company Drop You?

Can Your Homeowners Insurance Company Drop You?

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Homeowners’ insurance will be incredibly important if you own a home While you might be annoyed by having to pay a few hundred dollars per month for this type of insurance, homeowners’ insurance can protect you in various extremely costly scenarios.

These scenarios include fires, burglary, flooding caused by leaky pipes, aging homes, and other costly damages. Suppose you financed your home purchase. In that case, your lender will almost always require you to have an active homeowners insurance policy since they have a vested interest in your home to maintain its property value.

While you may think that you will be able to have a homeowners’ insurance policy in place simply by paying your insurance premium per month, that’s not always the case. It is possible for your homeowners’ insurance provider to “drop you” at various times. Below are some of the most common reasons your policy can be canceled and what you can do to avoid being dropped by your homeowners’ insurance company.

Reasons why your insurance company may drop you

One of the most common periods for getting your homeowners’ insurance policy canceled is during the first six months of your policy. While each provider has their own policy and preferences, many will include a clause in your initial contract that allows them to cancel the policy “for any reason” during the first six months.

Of course, insurance companies need to stay afloat and want to keep collecting the monthly premiums. Therefore, it is unlikely they will just randomly cancel your policy. However, if you violate the contract or become too risky for them, they may cancel or choose not to renew your policy. Below are some common reasons that may result in a non-renewal or cancellation.

Missed payments

Missed payments could be detrimental, and it is one of the most common reasons why insurance companies decide to drop their clients. Your homeowners’ insurance policy is a contract between you and the insurance company, and failure to make payments will be considered a breach of the contract. Therefore, it is crucial to make sure you make your monthly payments on time. 

Your monthly mortgage payment may include homeowners’ insurance premiums, property taxes, and even private mortgage insurance if you currently carry a mortgage. The funds will be deposited into an escrow account, and your lender will pay your homeowners’ insurance when it’s due. If, for some reason, you choose not to include your insurance premiums in your monthly mortgage payments, make sure you set up autopay or payment reminders.

> Learn more: How to calculate your monthly mortgage payments

A bad home insurance inspection

Additionally, your insurance provider may decide to drop you after a bad inspection visit to your place. Some common hazards that may result in cancellation or non-renewal include existing fire hazards, a bad roof, cracks in the foundation, and visible signs of mold and mildew. 

> Learn more: Things to Look for When Touring a House

Ignoring notices

Your insurance provider doesn’t just decide to drop you overnight. With most policies, there will typically be a bit of a grace period where you can pay late, and nothing will happen. Once this window is closed, you will likely have to pay a late fee, though the policy will still not be dropped.

The insurance company will likely send you a notice if you still have not paid your monthly insurance premium after the grace period and late fee. The notice will include a lot of important information, including explicitly stating the amount owed, when you will need to make your next payment by to remain in good standing, and when the company will consider dropping your policy.

In many cases, you can miss your homeowners’ insurance payments for three months before any real consequences take place. However, we strongly recommend not trying to test the system—you will almost certainly be accumulating late fees during this period and, at worst, will risk losing your policy.

Failing to renew your policy

There are a few other reasons why an insurance provider might consider dropping your policy. For example, if you fail to renew your policy, you might lose coverage even if you thought your payments were going through every month. For this very reason, it is essential to confirm that your policy automatically renews and ensure that your premiums are actually being paid each month.

Insurance fraud or excessive claims

Additionally, an insurance provider might drop you if they have any reason to believe you have committed insurance fraud. There are several types of homeowners’ insurance fraud. These include overstating the value of stolen or damaged property, lying about damages, damaging your property on purpose, or staging a fake incident. If your provider believes you are committing fraud, they might not only deny your claim but drop your coverage altogether.

Your insurance company might also drop you for filing too many claims. Some people are indeed exceptionally unlucky. But if your insurance company has reasons to believe you are filing a suspiciously high number of claims or that your claims are frivolous (different from fraudulent), they may decide to drop you.

How to avoid getting your insurance policy canceled

Being dropped by your homeowners insurance company is a rare but possible scenario. The best way to avoid a lapse in coverage is to continue making monthly payments. As long as you keep making all expected payments on time and avoid initiating any sort of fraudulent activity, it is extremely unlikely that you will ever lose your coverage.

Additionally, you will want to be diligent about ensuring that your policy is renewed regularly. If you don’t have automatic renewals for your policy, you will need to manually renew the policy every year or possibly every two years.

You should also be upfront about any potential claims. For instance, if your gardener got hurt while working on your property, they may want to file a claim. While you may not want your insurance premiums to go up, it’s always good to be transparent with your insurance provider and let them know about a potential claim and what happened.

How to fight and keep your policy

As suggested, being dropped by your insurance provider isn’t something that happens overnight. There is usually ample warning and clear instructions about the amount you will need to pay to keep your policy active and when the payments need to be made.

If you are worried about missing a payment, communicate with your insurance provider—they are often much more reasonable than you might assume. Most providers offer payment plans, especially during times of higher economic uncertainty (such as the COVID-19 pandemic). Being open and communicative will almost always be in your favor.

What to do if your homeowners insurance plan is canceled

If your plan is canceled, the first thing you should do is contact your insurance provider. Speak to an agent or representative and find out what happened. They will be able to provide you with the steps you need to take for your policy to be reactivated and to avoid any potential lapse in coverage. 

If the insurance company decides to drop you due to missed payments, it may be possible for you to make the payments and get back on the plan. If you believe this cancellation was made as a result of an error, a dispute policy will likely be available for you as well.

There’s a chance your insurance provider will refuse to reactivate your policy. So, you should start getting new quotes the moment you find out that your policy is canceled or if your insurer decides not to renew it. Being dropped might mean you have to pay higher rates, but that doesn’t mean you’ll be excluded altogether. Luckily, there are many homeowners insurance providers out there, and some may be willing to work with people recently dropped by another provider.

Consequences of not having a homeowners insurance policy in place 

Not having homeowners insurance is a terrible idea. Without it, you will be on the hook for covering anything bad that happens to your home. Some damages could cost you hundreds and even thousands of dollars. Additionally, if you lose coverage, you might run into trouble with your mortgage provider, who almost certainly requires you to maintain an active policy.

> Learn more: 10 Hidden Costs of Owning a Home

Conclusion

Losing insurance coverage can be stressful. But it can also be easily avoided and responded to when needed. To be in good standing with your insurance provider, make sure you submit payments on time and keep a close watch on your policy status. If you are struggling financially, it’s always good to be upfront about it, as your insurer could offer you payment plans.

 

Andrew Paniello
Andrew Paniello
Andrew is a freelance writer that primarily focuses on real estate and finance topics. He graduated from the University of Colorado with degrees in Finance and Political Science and has since worked in the real estate, life insurance, and digital marketing industries. When he is not writing, Andrew enjoys skiing, playing piano, painting, and spending time with his wife (Maggie) and cat (Crow).

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