A mortgage is a legal and binding contract that is full of stipulations. One of which is to make sure all of your payments are made on time. Another stipulation is that you carry a homeowners insurance policy that will cover the cost of your mortgage if your home is ever damaged or destroyed. If you allow your homeowners insurance policy to lapse for any reason, it may be seen as a breach of contract that can result in the loss of your mortgage and your home. Many lenders are quite strict when it comes to the homeowners insurance policies their client’s purchase.
Failure to Maintain Insurance
Failure to maintain your homeowners insurance can be a costly mistake. There are several reasons why a mortgage will lapse. Non-payment is often at the top of the list. Other reasons may include fraudulent answers on your original application or filing too many small claims against your policy. Any of these reasons can result in you being denied future coverage. You will need to find a carrier who will agree to take on your level of risk. High-risk policies are more costly than conventional policies and have more conditions as well.
Know What Your Mortgage Requires
If you find out your policy is going to be cancelled, you will need to go over your mortgage to determine exactly what it requires. Once you know what you need, you must find a homeowners policy that meets those requirements. Your lender will also have to approve the new insurance policy and have a copy of it for its records. You will also have to provide your insurance company with a copy of your mortgage as well.
Before You Change Policies, Make Sure They Overlap
Before a policy is cancelled, you will normally receive 15 to 30 days’ notice. During that time, you have an opportunity to find a new policy and have it in place before your other policy times out. If possible, have the other policy in place for at least two or three days overlapping your old policy. This allows you the time you need to provide your lender with a copy of your new policy and ensure them that their mortgage requirements are in place. Once they approve your policy choice, you will be good to go.
Avoid Lender-Purchased Policies
Avoid lender-purchased policies, they will cover the cost of the mortgage but not any of your interests. If you have invested money in your home in the form of renovations or improvements, you will not be compensated. Your personal belongings will also not be covered. You will also be responsible for any liability claims that may be filed. Lender-purchased policies only protect the lender. They do nothing to protect the borrower.
Losing your homeowners insurance can result in a disastrous chain of events that could lead to you not being eligible for policies in the future. It could also result in the eventual loss of your mortgage. If you ever find yourself in a situation where you are losing your homeowners insurance, contact our agents here at Jack Stone Insurance Agency. We have the answers to many of your questions when you first find out you may be losing your homeowners insurance.