Don't Let Your Homeowners Insurance Get Canceled! Avoid This One Mistake

Most people might not know this, but if you buy a house that needs repairs -- and you're not careful -- your homeowners insurance can get canceled. My wife and I recently bought a 100-year-old house. It was a bit of a fixer upper! In fact, the back entry to the house had rotten siding and collapsing fascia, and a damaged wood-framed window that needed to be ripped out and replaced.

We knew about these repairs when we bought the house. We were already hiring contractors to fix the problems. But one month after moving in to our fixer-upper, we got a letter from our homeowners insurance company notifying us of some shocking news: our home had failed its home insurance inspection.

The inspector's report said that the rotten siding and damaged entryway constituted "serious structural issues related to safety," and -- even worse -- that our policy was going to be canceled in 30 days. We were suddenly left scrambling to find a solution so we could keep our homeowners insurance, and, well, our house.

How could this happen? Can insurance companies really just cancel your homeowners insurance policy? Yes, they can. Let's look at a few reasons why homeowners insurance policies get canceled, and how you can prevent this from happening to you.

Why homeowners insurance gets canceled

Homeowners insurance is part of everyday life and often every month's mortgage payment for anyone who's ever bought a house. It helps protect you in case of disasters like fire or extreme weather events. Some homeowners insurance policies can also protect you from theft or legal liabilities, like if someone slips on your sidewalk and sues you for negligence.

Unfortunately, with the rise of climate change, extreme weather events are becoming more frequent. More homes are getting destroyed by wildfires, hurricanes, and other natural disasters, and just like the cost of car insurance, homeowners insurance companies' costs are skyrocketing. Sometimes the insurance companies respond to this cost crunch by canceling policies, or even leaving the state.

In the state of California, State Farm made headlines in May 2023 when it announced that it would no longer offer new homeowners insurance policies in the Golden State. Florida has also seen major insurance companies leave the state, and Florida homeowners now pay an average of more than $4,200 per year for homeowners insurance, compared to the national average of $1,700, according to data cited by Newsweek.

As the costs of home repairs increase, and as natural disasters get more frequent, we're likely to see a continued rise in the costs of homeowners insurance. Some homeowners will find themselves facing uncomfortable choices about how much house (and insurance) they can actually afford. Others will find themselves in the predicament I was in -- getting a day-ruining cancellation letter.

What to do if your insurance company cancels your homeowners policy

According to the Consumer Financial Protection Bureau (CFPB), if your homeowners insurance company cancels your policy, you have options:

1. Start by calling your insurance company to ask for an explanation, and ask if there's anything you can do to fix the situation.
2. Shop around for a new homeowners insurance policy from other insurance companies. (But be aware that if you have a serious problem with your home, other insurers are likely to raise the same red flags as your previous insurance company.)
3. If other people in your area are having trouble getting insurance because of frequent natural disasters or wildfire risks, contact your state's insurance department or insurance commissioner. Find out which insurance companies are still offering new policies where you live.
4. Try to get a FAIR plan. Most states offer special homeowners insurance to people who can't get it from private companies. These are called Fair Access to Insurance Requirements (FAIR) plans, also known as "insurers of last resort." But know that this last-resort insurance is likely to be higher-cost and lower-coverage than you might prefer. For example, the California FAIR plan covers fire, but not other residential property insurance coverages like theft or liability.

My wife and I were lucky: we were able to fix our homeowners insurance situation at step one, without having to shop around for a new policy.

A happy ending: How we got our homeowners insurance back

Nothing gets me motivated like an insurance cancellation letter. We called our insurance company to ask for more details. We explained that we were aware of the problems mentioned in the home insurance inspection report, and we were working to fix them.

Fortunately, the customer service person said that we could keep our insurance as long as we showed proof that we were in the process of repairing the house. We sent an email to our insurance company with written records of our contractors' price quotes and repair project start dates. Even though our home repairs hadn't happened yet, they were on the schedule -- and that was good enough to satisfy our insurance company's concerns.

It all worked out in the end. Our homeowners insurance policy was not canceled; we got to keep living in our house, we did not have to switch insurance companies or pay a higher premium, and our contractors did a great job of fixing, replacing, and repainting everything. We sent photos of the finished project to our insurance company, and we haven't had any other issues since.

Bottom line: If your home fails a home insurance inspection, you could be at risk for having your policy canceled. Other homeowners might lose insurance coverage due to higher risks of natural disasters where they live. Remember that you have rights and options; try to find a solution or switch to a new insurance company.