Dropping the home owners insurance when you have left your home and you are short selling the home could be a disaster! In a distressed home sale, homeowners that are no longer making their mortgage payments often forget about the home insurance. If you are not making the payments then your lender is not preparing to pay the home insurance when it is due. Even if you feel you are "tapped" out, this move could cost you thousands. In a short sale you still own the home and you are still responsible for the home and have a liability for the home. What is if there is an accident in the home from a door that was left open or glass that was broken by a baseball and someone get hurt. Who will the injured party sue for damages, it could be you! If the home has damage due to a toilet water fill that breaks and floods the house, what about the damage? All of these things do happen and can happen to you. If there is damage to the house the lien holder(s) may sue you for damages, called "waste" to the house. In a law suit the lien holders could elect to sue for the damages and you could loose the protection you may have received when you sold your home for the difference between the sales price and the mortgage value.
Your insurance company can provide the information to you about when the insurance policy is due. Insurance companies may have to adjust your policy if you no longer live there. All in all it is important to remember that until the house is sold or a foreclosure event happens and the deed tis transfered from your name, you are responsible, it is still your home. But don't believe me, call your insurance agent and find out exactly what you have to do to protect yourself from additional financial risk. Ignore this and things could get worse.