What is a moratorium?
A moratorium, also known as a binding prohibition, is when an insurance company stops issuing or updating policies because of an impending disaster. These often go into effect before a major storm, like a hurricane.
An insurance moratorium is designed to keep folks from buying (and canceling) coverage based on the forecast. Homeowners need coverage that anticipates their risks year round, not just when the weather seems especially dicey.
You may be impacted by a moratorium if:
- You want to switch insurance companies.
- You want to buy a policy.
- You want to change coverage to your existing policy.
If you're already insured and don't want to make any policy changes, a moratorium won't impact you.
Because you never know when disaster will strike, you want your policy to be ready for what comes next. Don't wait to get the appropriate coverage.
If you wait too long – especially during hurricane season – you may run into a moratorium and you’d have to wait until it’s lifted to get or change coverage. And you don’t want to be caught between policies or with inadequate coverage when a big storm hits.
When do insurance moratoriums happen?
Generally speaking, moratoriums happen anywhere from 24 to 48 hours before an expected event. Moratoriums can be put in effect for:
- Riots or civil unrest
In some instances, moratoriums are only in place for certain counties or regions. Other times, they are put in place for the entire state. It depends on the situation and its projected impact.
Every insurance company individually decides when to put a moratorium in place, so the timeline varies. This means you might not be able to get insurance from one insurer but could from another who hasn’t placed a moratorium yet.
But most will hit pause when a widespread threat is near. Usually within days of a storm making landfall, most insurance companies will not issue new policies or change the coverage on existing ones.
It’s also possible for a moratorium to last after an incident occurs, such as an earthquake in California. Aftershocks can come days after a major earthquake and cause more damage.
How do moratoriums work?
So what happens if you call an insurance company for a new policy and hear that a moratorium exists? You can still apply for insurance, but your new coverage won’t begin until the moratorium is lifted and the policy is bound. Any losses during this downtime would not be covered by the policy.
A moratorium can affect policies that are already in force, too, if you were hoping to change it. During the moratorium, you likely won’t be able to change a deductible from $5,000 to $1,000. You also won’t be able to add or remove coverages. The moratorium effectively maintains what an insurance company currently has on the books.
If your policy is set to not renew and would have expired during the moratorium, some companies will extend coverage during this time and bill for the additional days of protection.
Whatever you do, don’t let your policy lapse and hope for the best. Talk to your insurance company and see what can be done to keep your home safe.
How long does a moratorium last?
A moratorium will last as long as there is imminent danger. They remain in effect until the risk has passed. This timeline can vary drastically from event to event.
For example, if a hurricane rages through a community, the bulk of damage is known when the storm passes. However, there may be flooding for days after the storm. An insurance company may wait until all effects of the storm have passed before it lifts the moratorium.
Typically, it’s fair to expect a moratorium to last several days after the event passes. Some companies may take longer than others.
What happens if you’re in the middle of buying a policy when a moratorium hits?
So now you know you can’t buy your policy during a moratorium. But is there an exception if you’re closing on a house during this time? Or if you had to wait to buy your policy because you needed an inspection? Does the moratorium count if you started the process before the moratorium began?
Unfortunately, there are no exceptions with moratoriums.
If you’re closing on a home, the “force majeure” clause will likely go into effect and put escrow on hold. In fact, your loan will usually not fund during this time, either. Everything is put on hold because if your new home is damaged, it will need to be fixed to meet the final home inspection and appraisal amount to preserve your existing loan and insurance.
If you were in the middle of buying coverage, don't cancel your existing policy until you have a new policy in place. This prevents any gaps in insurance coverage when the unexpected happens – like a moratorium. After the moratorium passes, you can resume purchasing your new policy.
Note: If you buy flood insurance from the National Flood Insurance Program (NFIP), you won’t be subjected to a moratorium, but you will have to wait 30 days before your coverage starts. If you buy flood insurance from us, though, your coverage takes effect as soon as it’s bound, but can’t be purchased during a moratorium.
Getting insurance after a storm
When the moratorium is lifted, you can purchase your policy. Keep in mind that the quote you got prior to the storm and moratorium might change after if your property was damaged.
If you made it through the event unscathed, reach out to your insurance company to get your new policy squared away.