Six reasons your home insurance could be cancelled

As is the case with any relationship, sometimes things just don’t work out. When it comes to home insurance, you might decide that it’s best to cancel your policy and find yourself a better fit somewhere else. But there’s a big difference between initiating that cancellation on your own and having the insurer cancel on you.

When the latter happens, it will almost never benefit the consumer.

“You’ll have to disclose that to every other insurance provider when you’re applying for insurance,” says Daniel Mirkovic, president and CEO at Square One Insurance. “And it’s kind of like a black mark against your application.”

And all it takes is a quick phone call for an insurer to find out if you’ve had a policy cancelled on you. “Typically companies do that either on a spot-check basis or they might do that at claims time,” says Mirkovic. “So if a claim is at all suspicious then when you’re signing the application you give them permission to go and retrieve claims information, credit information, and past provider(s).”

But cancellations do happen. So it’s wise to know why an insurer might pull the plug on your policy. Here are six reasons why your home insurer could say sayonara:

1. Non-payment of monthly premiums

This is the most common reason an insurer cancels a policy on a consumer. At Square One, it accounts for almost 87% of provider-initiated cancellations.

Customers might think that a couple missed payments aren’t a big deal. But, says Mirkovic, “This one is very difficult for insurance companies.”

While NSF fees are non-existent with monthly credit card payments, every time an insurer tries to withdraw a monthly premium from someone’s bank account and there are insufficient funds, they get charged an NSF fee of about $20.

If you don’t think you’ll have enough money in your account one month, Mirkovic says the best thing you can do is notify your provider. That could mean agreeing on a different withdrawal date that lines up more closely with your payday. “Stuff happens,” he says. “If you're calling them and you’re being proactive, they’re usually going to find a way to accommodate you.”

2. Change in risk, or one too many claims

An insurer might cancel your policy for underwriting reasons, including if the risk has changed and if you’ve made too many claims according to what’s laid out in your policy. Combined, this works out to be about 12% of all insurer-initiated cancellations at Square One.

One example of a change in risk would be if your roofing materials are past their useful life and the insurer requires you to update them and you refuse. This could be grounds for your insurer not to stay “on risk,” Mirkovic says, requiring you to find coverage elsewhere.

“The insurance provider might say, ‘sorry, we’re going to get off risk because this could lead to other things.’ Because it’s not a matter of if you’re going to have a claim; it’s a matter of when. And insurance is all about the ‘if,’” says Mirkovic. “It’s not designed to cover expected losses.”

It’s also important to be aware of your insurer’s policy around claims and cancellations. “Some companies have a strict policy that if you have a claim within the first year, they’re going to cancel,” says Mirkovic. “In situations like that, there’s not much you can do. It’s bad luck if you have a claim in the first year.”

Mirkovic recommends reading your policy in full, especially what’s under the section titled “conditions” so that you can see under what circumstances your provider can initiate cancellation and how much notice they need to give you. “You don’t want to sign up with a company where they have this strict rule that a claim in your first year results in cancellation,” says Mirkovic.

“It’s not worth having that black mark against your record.”

3. The insurer decides not to renew your policy

An insurance company could cancel your policy if it stops servicing a particular region or stops offering a particular line of business.

“Usually this is called ‘non-renew,’” says Mirkovic. “The insurer will send out a notice to customers saying we’re no longer offering this. If it’s important to you, you need to take your business elsewhere. Or in some cases they might just say ‘sorry, we’re not writing in this area altogether.’”

Fortunately, this one won’t leave a stain on your record, since it’s got nothing to do with bad behaviour.

4. Fraud, misrepresentation or nondisclosure

Not the most common, but perhaps the most serious of ways that a policy can get cancelled on you is if you knowingly lie on your application in order to secure the policy or get a lower premium.

This can include not providing requested information on time, or at all, which is what happened to one man who failed to provide updated information by his auto insurer’s deadline, and had his policy cancelled on him.

“If an insurance provider asks you a question, you do want to respond,” says Mirkovic.

As for fraud or misrepresentation, “it has to be something that’s material to the risk,” says Mirkovic. For instance, if you say that your home is your primary place of residence but it’s actually a rental property, you’ve misrepresented the facts and effectively changed the risk from the perspective of the insurer. If, however, you say that your home was built in 1970 when it was really built in 1971, that’s less of a concern.

“If the insurance provider can say, ‘had we had the correct information we wouldn’t have insured this policy,’ then it basically means your policy is void and so is any coverage under it.”

Companies can void a policy ab initio, which is a latin term that means “from the beginning.”

“It voids the policy as though it never existed,” says Mirkovic. “So they will actually have to refund all of the premiums that they got from you. And it acts as though there is no policy; that no contract was ever entered into, and therefore there is no opportunity to file a claim under that policy.”

You might get all your premiums back, but your claim isn’t getting paid. “And if your whole house burnt down,” says Mirkovic, “then you’re outta luck.”

5. Unrepaired damage

A home insurance company can also cancel your policy if you make a claim and then don’t use the claim money to repair the damage.

In most cases, you need to provide proof that the repairs have been completed, whether in the form of photos or contractor invoices. If an insurer finds out that you used the money for something unrelated, they could cancel the policy entirely, which could jeopardize your chances of obtaining a policy from a different insurer.

“If a company cancelled because a claim wasn’t handled well [i.e. because the policy holder didn’t put the money toward repairs], then your next insurer might be worried about getting into a relationship with that customer because they’re going to think ‘are we going to be able to handle a claim and come to a satisfactory conclusion for both parties?’”

6. You switched providers and didn’t notify your insurer

If you decide to get home insurance somewhere else, it’s in your best interest to let your current provider know as soon as possible, especially before your policy gets renewed.

“Most insurance companies automatically renew for the customer’s protection,” explains Mirkovic. Like if someone was travelling or became seriously ill and they failed to make a monthly payment. Insurers auto-renew so that the customer isn’t without home insurance for a period of time.

“The customer may think, well, I’ve bought a policy somewhere else and so they don’t go to their current provider and notify them, so the insurance provider then cancels their policy for non-payment,” says Mirkovic. “That’s no good.” You’re still under a contract with your current provider.

If you decide to place your policy somewhere else or no longer require insurance, get in touch with your provider right away. “If you don’t do that,” says Mirkovic, “again, it could be a black mark that you’ve been cancelled for non-payment.”

Can you dispute a cancellation?

There is no formal process to dispute a cancellation initiated by your home insurer. “It really depends on the discretion of each provider,” says Mirkovic.

That said, if you believe there were unique circumstances, you can ask to have the decision appealed and escalated to management and sometimes, insurers will reinstate your policy. “It all comes down to the circumstances and how you present your case,” says Mirkovic.

If your policy was cancelled for non-payment, for example, you could offer to pay the full remaining annual premium upfront. “Usually the provider will offer that to you, but if they don’t you’re always welcome to suggest that,” says Mirkovic. “In most situations like that, I think the provider would say ‘ok if you’re willing to repay the premium upfront then we’ll reinstate the policy.’ And it doesn’t hurt to say that you’d like to have this matter referred to a manager. It never hurts to do that.”

Still, you’re better off avoiding a cancellation altogether. “Be honest and transparent when it comes to insurance,” says Mirkovic. “You’ll usually find a provider that will work with you regardless of your circumstances.”