Getting homeowners insurance is a requirement for most mortgage loans. If you can’t get coverage, it can put your loan and homeownership at risk. Here’s an overview of what can happen if you can’t obtain homeowners insurance and steps to take if you find yourself in this situation.
Why Do Lenders Require Insurance?
Lenders require homeowners insurance to protect their investment. If something happens to your home, like a fire or storm damage, insurance provides funds to rebuild or repair it.
Without insurance, damage or destruction to your home could cause you to default on your mortgage. The lender wants insurance coverage so there are funds available to restore the home and collateral for the loan in the event of a loss.
Consequences of Not Having Insurance
Failing to maintain homeowners insurance required by your lender can have serious consequences:
– Your lender may purchase a policy on your behalf and force place coverage. This type of insurance only protects the lender’s interest, not yours, and usually costs significantly more than a regular policy.
– You may be considered in default on your loan. The lender could demand you pay the full balance immediately or foreclose on the property.
– Your mortgage holder may place your payments in an escrow account and pay the premiums if you fail to do so. This takes the insurance decision out of your hands.
– You won’t receive any insurance money to rebuild or repair your home after a covered loss. All repair and replacement costs will be your responsibility.
– Your credit score may be negatively impacted.
Reasons You May Struggle to Get Coverage
There are several scenarios where you could suddenly be unable to renew your homeowners insurance or get coverage from a new carrier:
– You’ve filed too many claims. Frequent claims, especially for preventable losses, may cause non-renewal.
– Your home is in disrepair or not properly maintained. Issues like a leaky roof, faulty wiring, or other problems can make insurers view you as too risky to insure.
– You have a dangerous dog breed. Some insurance companies won’t cover homeowners with dog breeds like pit bulls or Rottweilers.
– Your home is in an area prone to natural disasters. Insurance may be limited or very expensive in flood or wildfire zones.
– There are undisclosed problems with the home. Things like prior foundation repairs or non-permitted renovations that you didn’t disclose can cause an insurer to deny coverage.
– You have a lapse in coverage. Gaps in insurance history often make securing a new policy difficult.
What to Do If You Can’t Get Insurance
If you can’t renew your existing homeowners insurance policy or find a new insurer willing to cover your home, don’t panic. You have options to avoid putting your mortgage in jeopardy:
– Contact your state’s insurance department. They may be able to help you find an insurer willing to write a policy.
– Look into state FAIR (Fair Access to Insurance Requirements) plans. These plans provide coverage as a last resort for high-risk homeowners.
– Ask your lender about force-placed insurance. While more expensive, it satisfies the insurance requirement. You can cancel it once you secure voluntary coverage.
– Make repairs and address any maintenance issues making your home uninsurable. Reinspect the home after repairs and provide updated documentation to insurance companies.
– Shop extensively and get quotes from several insurers. Look into non-standard companies that specialize in higher risk policies.
– Raise your deductible to lower premiums. A higher deductible makes you less risky to insure.
– Enroll in insurance bill pay programs. These automatically pay your premium so you don’t risk a lapse or nonpayment cancellation.
– Bundle your homeowners and auto policies with the same provider. Multi-policy discounts can help lower your costs.
Last Resort Options
If you exhaust all options and cannot get a traditional insurance policy, consider alternatives like:
– Surplus lines insurers. These carry coverage for unique, very high-risk situations when standard insurance isn’t available.
– Hybrid products. Some combine home warranties with limited insurance to provide basic coverage.
– Self-insurance. Have savings designated to cover damage repairs in lieu of insurance. Your lender must approve this option.
As a last resort, you may need to consider selling your home if securing insurance becomes impossible.
Avoid Insurance Lapses
Going forward, be diligent about paying premiums on time, thoroughly research insurers before buying a policy, fully disclose all home factors upfront, and maintain your home well to avoid insurability issues.
Report any pending non-renewals or cancellation notices to your lender right away. This gives you time to address problems before losing coverage.
Get Help from Your Lender
Contact your lender immediately if you receive a non-renewal notice from your insurer or find yourself unable to get a new homeowners policy. Don’t wait until the policy lapses.
The lender wants to avoid a lapse in coverage as much as you do. They can offer guidance on steps to take to get insurance and ensure their interest in your home remains protected.
Shop Carefully for Homeowners Insurance
To avoid insurance problems down the road:
– Compare quotes from at least 3 reputable insurers
– Look for companies specializing in higher risk coverage if needed
– Ask about multi-policy and claims-free discounts
– Insure your home for 100% of the rebuilding cost
– Choose appropriate deductibles to keep premiums affordable
– Add liability coverage in case guests are injured on your property
Avoid selecting insurance solely based on the lowest premium. Cheaper insurers may deny more claims or be quick to cancel policies.
Conclusion
Having homeowners insurance isn’t optional for most mortgage borrowers. If you can’t renew your current policy or find affordable coverage, act quickly to avoid putting your loan at risk. Consider state programs, contact your lender to discuss force-placed insurance, or make necessary repairs to improve the insurability of your home. With effort and persistence, most homeowners can eventually find the insurance they need to protect their property and mortgage commitment.