If you’re considering dropping your homeowners insurance coverage to save money, think again. Doing so is a bad idea on many levels, the least of which could be financial ruin if your home experiences damage beyond your ability to repair it. Although you’re not required to have homeowners insurance by law, your mortgage company requires you to maintain a certain level of coverage in order to stay within the terms of your loan.
What happens if I let my homeowners insurance lapse?
Don’t think that you can quietly let your home insurance coverage lapse by conveniently neglecting to make payment by the designated due date or by the outright cancelation of your policy. Issues this big rarely get ignored. The first thing that’ll happen—after you receive a friendly letter or phone call from your insurance company letting you know that your coverage has been canceled—is that the insurance company will contact your mortgage lender to give them a courtesy “heads up.” Soon thereafter, expect to be contacted by your mortgage lender instructing you to buy home insurance posthaste. If you don’t, they’ll purchase a policy for you and bill you for it with your mortgage payment.
What’s the worst case scenario?
It can get a lot worse than having your mortgage company simply buy insurance coverage for you and slap the premiums (which you can expect to be far more expensive than what you were paying before) onto your monthly mortgage bill. In some cases, the mortgage company could see this as a violation of the terms of your loan and may take legal action against you to recover the full amount of the money loaned.