Can Homeowners Insurance Be Cancelled at Any Time?
Explore the nuances of homeowners insurance policy termination, detailing rights, responsibilities, and the aftermath for both policyholders and insurers.
Homeowners insurance serves as a contract between a property owner and an insurance provider, offering financial protection against various risks and perils. This policy can be terminated under specific circumstances. Both the policyholder and the insurance company have the ability to end a homeowners insurance policy, though their conditions and processes differ. Understanding these termination rights is important for managing financial risk and ensuring continuous property protection.
Policyholder’s Right to Cancel
A homeowner has the right to cancel their insurance policy at any point. This flexibility allows individuals to terminate coverage for various reasons, such as selling their property, securing a more favorable policy with a different insurer, or no longer requiring the coverage. The process involves notifying the current insurance provider, through a written request, an online portal, or a phone call.
The policyholder specifies the desired effective date for the cancellation. If premiums were paid in advance, a pro-rata refund for the unused premium portion is issued, calculated based on the exact time remaining on the policy term. Some insurers impose a small administrative fee for early cancellation.
Insurer’s Right to Cancel
An insurance company’s ability to cancel a homeowners insurance policy mid-term is more limited than that of a policyholder. Insurers are restricted to cancelling policies only for specific, legally permissible reasons, especially after the initial 60-day underwriting period. Common grounds for an insurer to terminate a policy mid-term include non-payment of premiums.
Other reasons for cancellation include material misrepresentation on the application, where the policyholder provides false or misleading information about the property or their claims history. A significant increase in risk to the property can also lead to cancellation, such as undisclosed business operations, major structural changes, or a change in occupancy that substantially escalates the hazard. Insurers may also cancel a policy if they discover fraudulent claims have been filed.
When an insurer cancels a policy, they are required to provide advance written notice to the policyholder, ranging from 10 to 60 days, depending on the reason and regulatory requirements. This notice period grants the homeowner time to secure new coverage. Cancellation differs from non-renewal, where an insurer decides not to offer coverage at the end of the policy term.
After a Policy is Cancelled
Once a homeowners insurance policy is cancelled, the property immediately loses its insurance coverage, leaving the homeowner vulnerable to financial losses from damages or liability claims. If premiums were paid upfront, a pro-rata refund for any unused portion of the premium is issued to the policyholder, unless the cancellation was due to non-payment.
A history of policy cancellation, especially if initiated by the insurer due to reasons such as high claims frequency or misrepresentation, can make it more challenging and expensive to obtain new coverage. Mortgage lenders require continuous homeowners insurance coverage as a condition of the loan and will be notified of any policy cancellation. Failure to promptly secure new insurance can lead the lender to “force-place” an expensive policy on the property, which provides limited coverage protecting the lender’s interest.