What happens if you let your home insurance lapse? Possibly nothing at all.
Unlike car insurance or workers compensation insurance, home insurance is not required by law. Whether you buy insurance or not is entirely at your discretion, at least from a legal standpoint.
Even so, there are still several negative outcomes to be aware of. This is particularly true in the following cases.
- You're Still Under Mortgage: You may be required to carry insurance by your mortgage lender. If you let your policy lapse before you own your home outright, your lender may pay for insurance from your escrow. In this case, they'll raise your mortgage payments to make up the difference. Ultimately, this may have you paying more than you would if you'd kept paying for your own insurance.
- Something Goes Wrong: Obviously, this is a big concern. If something goes wrong, you're going to be paying for it out of pocket. This is not a big deal if you're rich. But it's a very big deal if you're not.
- You Try To Buy Insurance Again: If you let your insurance lapse and go for a time without before buying again, that may affect your options when shopping for a new policy in the future. An insurer looks at an insurance gap in the same way a potential employer looks at employment gaps. Further, if you have previously simply let a policy lapse, rather than canceling it, your new insurer has good cause to believe you might do the same in the future.
The worst-case scenario of going without insurance is if your home is totally leveled by a storm or a fire, and you have no way to cover it without going into your own pocket. A disaster that you cannot afford to cover yourself can bankrupt you — costing you your savings and leaving you destitute. Fires and disasters are not exactly uncommon occurrences. So, if you cannot afford to cover the damages yourself, you really are playing with the odds by going without home insurance.
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