What Can I Do If My Homeowners Insurance is Cancelled?

Homeowners are a vital part of protecting your home from mishap, crime, or disaster. If you have a mortgage, there's no avoiding having homeowners insurance: your lender will require it as part of the loan conditions. But even if you don't have a mortgage and own your house outright, not having homeowners insurance is inviting financial catastrophe.

But what if your homeowners insurance were to be canceled through no fault of your own? It's not impossible, but you have recourse if it happens to you. Let's dig into some of the reasons why homeowners insurance might be canceled and what homeowners can do about it if it does happen.

Cancellation vs. Non-Renewal

First, let's talk about the difference between cancellation and non-renewal. Cancellation is when an insurance company terminates the policy before its expiration date. Non-renewal means the insurance company lets the policy run through its expiration but declines to renew the policy afterward. Each scenario means something different for the homeowners involved.

Reasons for Cancellation

There are several reasons why an insurance company might choose to cancel a policy, including:

• Non-payment. One of the most common reasons for cancellation is the policyholder falling behind on premiums. While easier said than done sometimes, keeping up on payments will avoid this situation.

• Frequent claims: If a policyholder makes many claims within a short period of time, that can be a red flag for insurers -- it suggests a higher risk of future claims, costing the insurer more money. Some companies may choose to cancel the policy rather than risk further payouts.

• Fraud: If an insurance carrier has proof (or even suspicion) of fraudulent activity or intentional misrepresentation of facts by the policyholder, they're within their rights to cancel the policy and may do so to avoid even the possibility of fraud.

Legal Consequences and Recourse for Homeowners

However, insurance companies can't simply cancel a policy with impunity most of the time. They must follow certain laws and regulations when canceling or declining to renew policies. These laws vary by state, but generally include the following:

• Notice requirement: Typically, insurance companies are required by law to provide written notice of cancellation to the homeowners, with a range from 30 to 60 days.

• Valid reasons: Insurers must provide valid reasons for canceling a policy, such as those given above. Insurers may not arbitrarily cancel a policy based on factors such as gender, race, or age.

In addition, the cancellation of a homeowners insurance policy will stay on your record -- how long exactly varies by state, but it typically ranges from three to five years. This could make it difficult for you to obtain favorable insurance premiums for as long as the cancellation remains on record.

Preventing Cancellation

So what can you do to avoid having your homeowners insurance canceled? In most cases, it comes down to keep doing what you're already doing if you're a responsible homeowner.

• Make timely payments. Make sure you build a good payment history by never missing payments if you can help it.

• Maintain your home. Try to minimize potential risks by keeping your home in good condition, such as fixing leaks or maintaining your electrical system. Addressing issues promptly can reduce the chance of having to make a claim.

• File claims responsibly. Don't take chances by filing frivolous or minor claims when they're not necessary.

• Be honest. If and when you do file a claim, it's unwise to exaggerate or stretch the truth -- you could end up in a lot more trouble.

What To Do If Your Homeowners Insurance is Canceled

Sometimes, through no fault of your own, things just happen, and your homeowners insurance might get canceled in spite of your best efforts. Here are some steps you can take when that happens:

Identify the reason why your policy was canceled, either by contacting your insurance company or examining the notice they provide. Understanding the reasons for the cancellations can help with possibly resolving the issue.

Next, see if your current insurer is willing to work with you on resolving the problem. If not, you may have to shop around and compare homeowners insurance quotes -- The Zebra's Kristine Lee has a comprehensive guide to comparing home insurance quotes that can help with this.

If you have a mortgage, your lender may arrange force-placed insurance so their loan is adequately covered. Unfortunately, these policies tend to be more expensive and limited in coverage, which makes it all the more important to compare homeowners insurance quotes and see if you can find another policy.

As a last resort, you may be able to apply for your state's FAIR plan if you can't find coverage with a private insurer. The FAIR plan is focused on providing coverage to high-risk properties. As with forced-place coverage, you will be paying more in premiums, but you'll be covered.