Record Numbers of Homeowners Are Losing or Dropping Insurance—and Facing Legal Trouble

Few people enjoy paying for homeowners insurance, but most understand the financial devastation that can result from going without it. As homeownership costs skyrocket and coverage becomes harder to obtain, however, millions of Americans are questioning whether they can afford to stay protected—or if they even have a choice in the matter.

Unfortunately, between insurance premium hikes, rising homeownership costs, and even an inability to obtain a policy, a whopping 1 in 7 homes in the U.S. is uninsured, and over 50% of homeowners say they’d consider going without insurance if the price got too high. 

But whether you're considering dropping coverage to save money or you've been dropped by your insurer, the legal reality of being uninsured is complicated. Your mortgage lender, your homeowners association, and certain federal laws have a lot to say about whether you can go without coverage—and what happens if you do.

Going without insurance isn’t illegal, but it may be required

Unlike auto insurance—which most states require by law—no states have laws mandating homeowners insurance. So if there's no legal requirement, why do most people have it? The answer typically comes down to your mortgage lender. 

"States do not require that you have home insurance, so in that sense, it's not illegal to go without coverage," says Melanie Musson, a home insurance expert with Quote.com. "But since your lender has the right to foreclose on your house if you don't hold up your end of the agreement, their authority is as serious as a legal requirement."

Most banks and lenders require a borrower to have and maintain homeowners insurance as a condition for getting a loan. This is the primary legal lever compelling insurance coverage, affecting the vast majority of homeowners. Other private contractual agreements may force you to have a policy as well—for example, your HOA, if you have one, may still require you to have insurance even after your mortgage is paid off. 

While states don't mandate general homeowners insurance, federal law does create mandatory insurance requirements in specific circumstances. Under the Flood Disaster Protection Act of 1973, federally regulated lenders must require flood insurance if a property is located in a Special Flood Hazard Area. This is the only legal mandate for residential property insurance in the United States.

How mortgage lenders enforce coverage

Mortgage lenders' authority to require homeowners insurance stems from their financial interest in the property as collateral. Most lenders require that your home is insured for 100% of its replacement cost, and this requirement continues until the mortgage is fully paid. When homeowners fail to maintain required coverage, lenders don't wait—they take immediate action.

"When your lender discovers that you let your home insurance policy lapse or you canceled it, they will make sure you have coverage," explains Musson. "As a courtesy, they may contact you and demand that you reinstate coverage. If you don't, they will place a force-place policy on your home."

Federal law requires that homeowners are notified at least 45 days before force-placed insurance placement, and a second notice is sent if the homeowner hasn't responded. The law also includes standards for terminating a force-placed insurance policy and issuing refunds when a homeowner secures their own coverage.

But the financial impact of getting to this stage is severe.

"A force-place policy is so much more expensive than homeowners realize," warns Musson. "It's the worst kind of coverage to have because of its excessive cost and the fact that it only covers the lender's interest in your home and not your belongings or liability."

The legal consequences of going uninsured

The legal landscape around uninsured homeowners varies significantly depending on property type and location. 

"The specific type of insurance required depends on the loan and other factors, so it's important for a homeowner to be mindful of any potential needs for additional coverage against personal property and additional living expenses," explains Justen Fischer, an insurance attorney and partner at Clausen Choquette law firm. "There may also be state-specific laws requiring insurance in certain circumstances. For example, Florida law imposes an obligation on condominium associations to obtain insurance covering the common areas and parts of the condominium property."

For homeowners without mortgages, going uninsured carries no direct legal penalties. However, the financial and legal vulnerabilities are substantial. 

"Homeowners face significant financial risks if they're uninsured and something happens to their property, including the financial responsibility to repair or rebuild your home,” says Fischer. “Additionally, a homeowner may be in breach of the provision in their mortgage requiring homeowners insurance, resulting in a potential lender default."

Beyond property damage, your legal protections are limited without liability insurance. If someone is injured on your property, or their property is damaged there, you may have to pay for medical bills, legal costs, and damages out of pocket—expenses that could reach hundreds of thousands of dollars.

When coverage is denied: Legal limbo for homeowners

It's one thing to feel you can go without coverage, but what if your insurer drops you or won't renew your policy? This scenario is becoming increasingly common as insurers withdraw from high-risk areas or refuse to renew existing policies, leaving homeowners in a bind. 

"The problem arises when you attempt to obtain insurance but are unable to do so," explains Musson. "If you live in an area where insurance providers are pulling out, you may feel stuck, unable to fulfill your end of your mortgage agreement."

In some states, there are legal backstops for denied homeowners. High-risk insurance pools or Fair Access to Insurance Requirements plans may be available; however, these come with limited coverage and higher costs.

"It's not as comprehensive as a standard home insurance plan, and it's more expensive, but it's a lot better than nothing," says Musson. 

However, these state programs often have long waiting lists and strict eligibility requirements, leaving many homeowners in legal limbo—unable to obtain required coverage but still bound by their mortgage contracts to maintain it. Federal lawmakers are also considering legislation that would create a government-backed reinsurance program to help stabilize insurance markets in high-risk areas, though that has yet to pass.

For homeowners facing this situation, Fischer advises understanding your legal rights: "The insurance policy will typically contain specific clauses addressing the rights and obligations of both the insurer and policyholder when canceling or nonrenewing insurance. A homeowner or condominium association should speak to an insurance attorney or consumer advocate if they feel like they've been wronged."

Adapting to a new reality

The homeowners insurance crisis is exposing gaps in our legal system. While no state actually requires you to have it, mortgage contracts and federal regulations create a system where most homeowners effectively have to carry coverage—even when that coverage becomes impossible to find or afford.

Going forward, states will likely need to step in with stronger regulations and better consumer protections. The bottom line: As insurance becomes harder to get, the legal system will need to evolve to protect both homeowners and the banks that lend to them. Otherwise, homeownership itself could become even more unaffordable for many.