What Happens When Your Homeowners Insurance Lapses?

An insurance lapse leaves you financially responsible for damage to the home.

fire in house image by Ivonne Wierink from Fotolia.com

Unless you are independently wealthy and can afford to rebuild your residence if it is destroyed, don't let your homeowner's insurance lapse. A lapse in homeowner's insurance results in a loss of financial protection if damage occurs to the home. Failure to pay the premiums or renew the policy leads to a lapse, as does an insurance company declining to renew a homeowner's policy. Keeping an insurance policy in place protects both the homeowner and the mortgage company.

Financial Risk

A lapse in coverage means you can no longer file claims if a major loss, such as a fire or burglary, occurs at your home. You assume all financial responsibility should such a loss occur. For a minor event, like a burst pipe, the potential financial burden is small. If your home is a total loss due to a fire or a burglar steals expensive items you once had insured, your financial loss is much higher. Letting a homeowners policy lapse puts you at risk to lose hundreds, thousands or even millions of dollars, depending on the value of your home and insured possessions.


Lapsed insurance also results in a loss of liability coverage for anyone who is on your property. The insurance pays for medical bills for individuals who are injured when you are at fault, as well as personal property damage for which you are responsible. Liability coverage pays for legal costs should the other party sue you. When your policy lapses, you leave yourself open to lawsuits for injuries and damage you caused or that occurred on your property.

Force-Placed Insurance

The lender for a mortgaged home sets requirements for homeowners insurance. When homeowners insurance lapses, the insurance company usually sends a letter to the lien holder listed on the policy. The mortgage company has the right to purchase a policy for the home to protect the company's interest and pay for it with the homeowner's escrow. This force-placed insurance typically comes at a higher rate than a policy the homeowner buys on his own. You have no choice in the policy and will likely have worse coverage than your original policy.

Replacement Insurance Difficulty

When a homeowner attempts to start a new insurance policy, any potential insurers will find out about the lapse. The insurer sees the homeowner as a higher risk due to the period without insurance. The lapse potentially makes the homeowner look irresponsible or financially unstable. Insurance companies may also think the reason for starting a new policy is to file a claim on damage that has already occurred. The increased risk potential often causes a higher premium on the policy or difficulty finding any company that will insure the property.