Should I Drop My Home Insurance if My Home is Paid Off?
If you are like most Americans, your home is one of your most valuable assets. A home with a paid off mortgage contributes significantly to your net worth and provides added financial security. It only makes sense to protect your investment with homeowner's insurance. You should not eliminate your homeowner's policy just because you no longer have a mortgage that requires insurance coverage. Furthermore, a paid mortgage doesn't necessarily mean you are not required to carry insurance on your property anymore. For example, if you have a home equity loan or line of credit, your lender likely requires you to insure your home, which serves as collateral to secure your debt.
Some homeowners opt to downgrade home insurance after paying off a mortgage rather than eliminate it altogether. Though this is a better option than cancelling your homeowner's policy, it still provides you with limited protection against unforeseen circumstances. Before making the decision to downgrade your policy, consider your financial ability to recover your losses should your home catch on fire, fall victim to a burglary or suffer other damages. After all, homeowner's insurance doesn't just cover your structure; it also provides compensation for your personal possessions, such as furniture and electronics.
If your goal is to save money by cancelling or lowering the value of your insurance policy, consider alternative ways of reducing your annual premiums. For instance, many insurers provide discounts to homeowners who are claim-free for an extended period of time. A monitored home security system could also lower premiums as will a high policy deductible. You may also be able to get a discount if you carry automotive insurance through the same insurer that you have your homeowner's policy through. When in doubt, ask your insurance agent for advice on achieving a lower premium without affecting your coverage.