When you purchase a home insurance policy, it is for a term. The term is usually one year. But there can be certain compelling reasons that may require you to change your policy or insurance company before the term is completed. It is entirely within your rights to do so. However, what you have to remember is that your insurance coverage does not get jeopardized during this switchover period.
Often people shop around for the best insurance available or the one which is the cheapest. When they find a better insurance they would want to switch over mid-term. However, there are certain consequences you need to face while switching over to a new policy.
First is the Early Termination Penalty. The insurer while insuring your house for a year has taken the insurance amount for a whole year in advance. While doing this, he may have offered a certain discount for advance payment of premium. So when you cancel a policy mid-term, the refund you will get will not exactly for the months remaining but a little less. This is so because the per month insurance cost may actually have been more than what you paid for the whole year initially. Since you paid the amount in advance, some discounts may have been given to you.
The insurance company will now take away that advantage from you. So what you will get as the refund amount will not exactly be the pro-rata amount for the months the insurance was canceled, but a bit lower than that.
The second point that you should be careful about is, to ensure that your house lies covered during that period. The lapse in coverage can be viewed seriously by the mortgage company and it may be illegal according to the terms and conditions of the mortgage. The lapse in coverage also exposes you to great risks in case of accidents. So, prevent such a situation.
Remember that it takes some time for the new insurance to take effect. Plan accordingly to ensure that your present insurer continues to provide insurance to you till the new insurance takes over.