Can I Cancel the Homeowners Insurance—I’m Moving Out

Are you giving up your house as part of your bankruptcy? If you are, can you cancel the homeowners insurance?

I say, No. You homeowners insurance does two big things. First, it would pay to rebuild your house after a fire. If you’re giving the house back to the bank, maybe you don’t care about that. (Maybe you do.) Second, it protects you against liability for accidents on your property. That’s still important. In fact, if you are moving out it might be even more important.

Your homeowners insurance protects you from liability for accidents on your property. So don’t cancel the homeowners insurance.

Until there’s an actual foreclosure, the property owner—that’s you—can be liable for accidents caused by unsafe conditions on the property. Most obviously something like dangerous ice on your sidewalk. But maybe an abandoned refrigerator. All those dangers are small, but they can add up.

Isn’t the bank the owner once I move out?

No, the bank does not become the owner until there is an actual foreclosure. If you’ve stopped paying and filed bankruptcy, that can be as little as three months, but usually four or five and sometimes much longer.  I explain a little more about that, here. 

So if you are asking me is it safe to cancel the homeowners insurance, when you move out, my answer is, No.

A real example: Rainstorm and falling tree.

Dan and Stephanie filed Chapter 7 bankruptcy with me in the Spring of 2016.  A year later, the bank still had not foreclosed on a small rental property they had in Ohio.  The next month, a tree from their property, during an unusual storm, fell on their neighbors’ house and car.  Now the neighbors can look to their insurance to get the house and car fixed. But that insurance company will want to show that it wasn’t just an accident—that Dan and Stephanie are responsible for not taking proper care of the trees. That’s why it’s even more important, if the property is vacant, to keep up the insurance.