A buyer who acquires fire insurance to complete a property purchase cannot let that policy lapse without exposing the buyer to financial risk.
If the buyer has obtained a loan secured by the property, the lender will typically have a forced-payment clause in the loan documents which allows the lender to acquire fire insurance on the owner’s behalf, at the owner’s expense, if the owner’s fire insurance policy is no longer effective because the owner stops making payments, or the fire insurance company terminates coverage for any other reason. Policies obtained through a forced-payment clause are usually designed to primarily protect the lender’s secured interest, and not the owner’s ability to fully recoup losses in the event of a fire. Such policies can be expensive and have limited coverage. Even if a property is not secured by a loan, the buyer is exposed to all of the losses and costs to rebuild in the event of a fire if there is no fire insurance policy in effect at the time of fire.

There are restrictions on an insurance company’s right to terminate coverage or “non-renew” an existing policy as well minimum rights applicable to temporary relocation and time to rebuild.
In an effort to assist homeowners, the California Legislature has enacted laws that require fire insurers (i) to continue and/or renew coverage for at least one year from the date of a declaration of emergency (Insurance Code § 675.1), (ii) to pay for necessary additional living expenses for up to 24 months (Insurance Code § 2060), (iii) to allow owners 36 months to rebuild because of the difficulty in finding coverage and contractors after a widespread wildfire (Insurance Code § 2051.5). If the fire insurance carrier is not admitted in California, these Department requirements may not apply. Fire insurance companies can terminate a policy for non-payment of the premium.