Insurance lapse definition
Every insurance policy is underwritten for a term, or the period when the coverage is in force. When the term ends without the policy being renewed or canceled, the policy has lapsed. Sometimes a policy lapses because the policyholder didn’t do anything when they got their renewal notice. However, many insurance companies automatically renew coverage, so this is less likely to happen this way.
The more common reason for a lapsed policy is unpaid premium. If you fail to pay your premium monthly, then your homeowners insurance policy may lapse prior to its expiration date. That means all the contractual commitments made by your insurance company no longer exist. Basically, an insurance lapse means you are now uninsured, even if only for a short while.
Your insurer might also cancel your policy if you misrepresent yourself on your insurance application. And insurance companies have been known to change their underwriting guidelines, decide your home is too risky to insure, and send you a non-renewal notice. These situations can also cause an insurance lapse.
How can a lapsed policy hurt homeowners?
A lapsed policy leaves you without coverage, and that could be devastating if you experience damage before you get new insurance. Your insurer isn’t obligated to pay claims during a lapse, so you’ll have to pay the costs of any damages on your own.
Additionally, an insurance lapse may mean:
- Your premiums will go up.
- Other insurance companies won’t want to insure your home.
- Your mortgage company will buy more expensive coverage on your behalf.
Insurance companies have to notify you if they plan on canceling or not renewing your home insurance, and most provide a 30-day grace period for nonpayment. These give you an opportunity to take action. In the case of a non-renewal or cancellation, you most likely need to find a new company that can provide coverage so you don’t have a lapse.
How to avoid an insurance lapse
The best way to avoid a lapse in coverage is to pay your insurance premium regularly. You might also want to sign up for a payment plan where your premium is automatically deducted from your checking account or put on a credit card. Then you don’t have to remember to pay your bill, and you can prevent any errors from delaying your payment.
You also want to respond to all notices your insurance company sends. While insurance companies are notorious for sending out a ton of paperwork, their notices may alert you to any trouble that could lead to a lapsed policy. Most insurance lapses can be avoided if you deal with them prior to or during a grace period. This is the best way to avoid a lapse.
How to get insurance after a lapse
A lengthy gap in coverage increases your chances of having a claim occur while you’re uninsured. This makes it important to get new coverage as soon as possible if your policy lapses. Start by checking with your home insurance provider to see if your coverage can be reinstated. If not, then it’s time to call other insurance companies to get new quotes for coverage. Do this even if you plan to contest your insurer’s actions.
After you get a few quotes, you need to apply for and purchase coverage. One of the most important steps here is to set an immediate effective date so your insurance coverage kicks in right away. Otherwise, you’re simply extending the time when you don’t have coverage.
Keep in mind that if you have a mortgage, then you’re probably required to maintain continuous home insurance. If you don’t, your mortgage company might purchase a policy and send you the bill. Policies purchased by a mortgage company are notoriously more expensive than what you could purchase on your own.
While a lapse is seldom a good thing, it doesn’t mean your home is uninsurable. Contact Kin for a quote to see how we can help you out.
