My Homeowners’ Insurance Was Canceled: Now What?

Most buyers of a home or real estate also willingly buy homeowners' insurance, so as to cover possible damage to their costly investment caused by fire, criminal activity, storms, flooding, and so on. In fact, their bank or mortgage lender (if any) will likely demand that they purchase insurance, to assure that the property (their loan collateral) retains its value and can be repaired and sold if the borrower defaults. (For background, also see Homeowners' Insurance: What You Need to Know to Be Fully Covered After Damage or Loss.)

Under ordinary circumstances, homeowners renew their insurance policy once a year. So it's a shock when, at or before the time comes for renewal, the insurance company simply cancels the policy or refuses to renew. That shock is, unfortunately, being felt by an increasing number of homeowners across the United States. Insurance companies are trying to reduce the risks posed by a surge in environmental disasters such as wildfires, storms, and flooding.

What you can do in response depends on how individualized the denial was, especially since some insurers are closing down activities in entire states, as we'll discuss in greater detail here.

Can an Insurer Really Cancel My Homeowners' Coverage?

The short answer is yes. Insurance company contracts normally give them the right to cancel coverage for any of various reasons, even before the policy is up for renewal. Most are reasons you would expect and understand, like homeowner fraud, failure to pay premiums, neglect in maintaining the home at a minimum level, or violating some other contract term, such as by keeping a dangerous dog or running an unreported or illegal business.

Your state's law likely limits the legal grounds for cancellation (as described below), so that it can't merely be arbitrary. Nevertheless, a few states allow cancellation in broad circumstances beyond the homeowner's control, such as a change in "underwriting criteria." In these states, an insurer can cancel based simply on a change in the company's degree of concern that the homeowner is likely to file a claim. If the insurer is uncomfortable with its analysis of the odds that a homeowner might submit a damage claim so high that it wipes out any potential profits, it can cancel the policy.

In any case, when it comes to annual renewals, the insurance company always has broad rights to say "yes" or "no." You're negotiating a new contract, after all. Thus, any protection you might gain from legal limits on outright cancellation can help you for only a matter of months, until your policy is next up for renewal.

State Legal Protections Regarding When and How an Insurer Can Cancel a Policy

Most state laws try to protect consumers from sudden withdrawals of homeowners' insurance coverage. They typically mandate that the insurer give the homeowner written notice of any planned cancellation or nonrenewal, most often within 30 to 45 days, and they they explain the reasons for their decision. The state might also obligate the insurer to provide customers with relevant information and images from their file, such as photos of the property.

For example, New York state law mandates that, after a new homeowners insurance policy has been in effect for 60 days, the insurer may not cancel or even refuse to renew it for the next three years, unless one of a specified, narrow list of reasons exists. A change in underwriting criteria is not included in this list. (See NY Insurance Code Article 4 Section 3425.)

Texas law, as another example, disallows cancellations except in situations of legal necessity or, broadly speaking, where the homeowner was at fault; but allows nonrenewals for any reason, so long as the insurer provides advance notice within 30 days of nonrenewal (if the person bought the policy before 2024) or 60 days (if they bought the policy in 2024 or later). (See Tex. Ins. Code § 551.104.)

Delaware law, by contrast, allows insurers to cancel a homeowners' policy based on a "change in the risk which substantially increases any hazard insured against." They must give at least 30 days prior advance notice. (See Title 18 Delaware Code Section § 4122.)

Be sure to research the law in your state or consult an attorney, as details vary. The general idea behind most such laws is to give homeowners time to plan or to seek coverage from other insurers. Small comfort, but it is time you'd want to make good use of, as discussed below. Even a day's lapse in coverage could be risky; any damage that happens to your home on that day wouldn't be covered, and you'd be on the hook financially.

Why Did Your Insurer Cancel Your Homeowners' Coverage?

Broadly speaking, the two most likely reasons for an insurer to cancel or refuse to renew a homeowner's policy are:

1. Individual reasons. The company no longer believes insuring you is good for its bottom line, perhaps because you didn't adhere to the contract terms or you made numerous claims or particularly expensive claims.
2. Geographical reasons. After evaluating common issues affecting homes in your area (such as vulnerability to wildfires or frequency of hailstorms), the insurer decides that your property is too risky to cover. An insurance company might even decide—without attempting to evaluate the risk level of individual homes—that an entire state is too risky to cover, as has happened in a growing number of states such as California, Texas, Florida, and Colorado.

As mentioned, the insurance company will likely be legally required to tell you its reason for cancellation or non-renewal. Below are your most likely ways to respond. The procedural details will depend on the company, as well.

Dealing With an Individually Based Insurance Cancellation or Nonrenewal

If something you did led to the cancellation or nonrenewal, reversing the insurance company's decision might be impossible. However, if you can remedy the situation or you believe the insurance company made an error, it's worth trying, at least so as to improve your CLUE report. A CLUE (Comprehensive Loss Underwriting Exchange) report is a record of your history of property insurance claims. Any insurance company that you apply to will review your CLUE report, so you'll want to make sure it's accurate and provides the most favorable picture of your insurability as possible.

If, for example, you failed to pay the premium (or if the insurer wrongly thinks you did), perhaps you can quickly make that right. Or if your insurance company made an outright error—took a drone photo of your roof and falsely thought your skylight was a gaping hole, for instance—you could supply evidence to counter that. Some insurers will allow homeowners to contest (argue and present evidence against) their decision.

But some issues simply aren't fixable, such as documented fraud or a long history of claims based on water leakage. Your only choice would likely be to shop around for new insurance. And while some state's laws give appeal rights to homeowners whose policies have been canceled before their term was up, none grants any right to appeal a nonrenewal.

Dealing With Cancellation or Nonrenewal That Was Based on Where You Live

Unfortunately, dealing with insurance company decisions that respond to the effects of extreme weather or climate change in your area is hugely challenging. Insurance companies are simply designating some areas as high-risk and then either picking and choosing which properties they no longer wish to cover or ceasing to offer insurance at all, area-wide.

Still, if the decision by your company failed to take into account your property's unique factors, and you can show that something was overlooked or misunderstood in the decision, you could try to contest it, following their procedures.

If Homeowners' Insurance Is Canceled, What Happens to the Mortgage?

Cancellation or nonrenewal of homeowners' insurance is a serious matter. Unless you find alternative coverage in time to avoid a gap, it could be considered a breach of your mortgage terms. (You won't be able to hide it from the lender, either, since the insurer is obligated to tell them.) The lender might respond by doing any or all of the following:

• Imposing fines. This might either be a flat fee or a percentage of the outstanding (unpaid) loan amount.
• Buying what's called "force-placed insurance" or "lender-placed insurance" for the property. This cost, it will pass on to you (at a high price, though for incomplete insurance, covering mostly the structure, in other words the lender's collateral, while leaving out coverage for personal possessions or liability). The lender must, under federal law, give you at least 45 days' notice before charging you for force-placed insurance. If this happens to you, also see the Consumer Finance Protection Bureau (CFPB)'s guide to removing force-placed insurance.
• Recalling your mortgage. This is a last resort, meaning the lender demands that you pay off your loan in full or face foreclosure. Some homeowners end up selling the property to deal with this, though selling the place will be tough if the home's next buyer will also have trouble purchasing insurance.

When you are able to find replacement insurance, with or without a lapse in coverage, be sure to provide the details to the mortgage lender. It will likely ask for documentation of the new policy.

Avoid Giving Current Insurer Any Added Reason to Cancel or Refuse to Renew Your Policy

If you still have insurance, but you live in a region where insurers are getting cold feet about providing coverage (such as in California, Colorado, Texas, or Florida), you will want to do everything possible to make yourself look like a worthwhile customer.

That starts with the basics: pay your insurance premium on time and comply with any and all company requirements regarding home safety and maintenance. (Read your policy again; you might be surprised at what you discover.) Being proactive can't hurt, either, such as by installing an alarm system or updating your electrical and other systems and advising the insurer.

You could also raise your deductible amount (say, to $1,500 if your mortgage lender will allow it), so that you are not tempted to put in low-dollar claims. The more claims you file, the more the insurer will look upon you as high-risk. To be on the safe side, create a separate financial account containing this deductible amount and (ideally) enough emergency funds to live on if disaster strikes.

What to Look for When Shopping for New Insurance

For dealing with regional issues with regard to insurance coverage, keep an eye on the news and online chat groups in your area to find out which insurers are still offering coverage. Although you might be able to get a ballpark figure of how much these insurers are charging for coverage, because costs vary so much, you'll have to shop around for the best deal. A company that insures your neighbor for a reasonable rate might charge you a lot more based on your home's features or your CLUE report.

Your state's insurance department should be able to provide you with a list of insurers that provide coverage in your state.

An insurance agent or broker can also help. An agent usually represents only one company. A broker, on the other hand, scours the options provided by multiple insurance companies to find policies with the best and most affordable coverage.

If all else fails, look into whether you can buy coverage through a state-mandated insurance plan, sometimes called a Fair Access to Insurance Requirements (FAIR) plan. While you're at it, if you feel you've been mistreated by your insurance carrier, complain to your state's legislature and department of insurance.