Homeowners insurance is not required by law on every home, but most mortgage companies and banks will require you to have homeowners insurance. They want to protect the investment they made in your home, and if it burned down, they know that the average person would not have the funds to replace it. Until it is paid off, the bank has a stake in your house. Once you pay off your mortgage, homeowners insurance is optional, but is it a good idea? Here are some questions to consider:
Can you cover the cost of replacing your home if it burns down?
When it comes to one of the biggest investments you will make in your life, you need to consider the worst case scenarios. If your home was to burn down tomorrow, what would you do?
More than half of Americans do not have over $300 saved in case of emergency, much less potentially hundreds of thousands needed to build a house. Without homeowners insurance, if your home was destroyed, it could financially ruin you and most other Americans. It is best not to let this happen.
Do you have fun big “toys”?
Once you have paid off the home, it might be time to start investing in some big toys, such as ATVs, boats, campers, etc. While it is a good idea to have a separate insurance policy for each of these, if they were damaged while on your property, it could be covered under your homeowners insurance policy. For example, while your boat is being used in the water, a boaters insurance policy will be protecting you. Once it is parked at your house, then it would be covered by the homeowners insurance policy.
Do you want to be sued?
Hopefully this never happens to you, but you can never be too safe. If a child’s friend was hurt while playing on your property, you could potentially face a law suit. Another example would be if you had a party, and someone fell and was injured. If you do not have homeowners insurance, then you would have to pay for litigation out of your own pocket. If you do have insurance, then your costs will be covered.
Here are a few tips to save money if you have paid off your home:
- Raise your deductible. If you no longer have your mortgage each month and are able to save more, you may be allowed to raise your deductible. Doing this will help lower your insurance premium.
- Install security. Often you can save money on your insurance if you have a security system. This is a good thing for your personal safety, but it also saves you money.
Congratulations, if you have paid off your home! Even though it can be tempting to remove the cost of homeowners insurance, resist the urge and stay protected.