As a homeowner, you probably had to initially get your homeowners insurance policy as a requirement when you got your mortgage. This is because the lender had a lien on the home, meaning that the lender could legally take ownership of the home through foreclosure if you failed to make your mortgage payments. Because of this financial interest in the home, the lender required insurance to guarantee that the home would not suddenly drop in value after a catastrophic event.
However, once you pay off your mortgage, there is nobody looking over your shoulder to see if you are maintaining your homeowners insurance coverage. In fact, you can even drop the insurance if you want to. However, this is a complex financial decision that you should not take lightly, and definitely don't just drop the policy right away to save money after your house is paid off.
Consider Your Financial Strength: Once you have paid off your house, it is likely your largest asset, and therefore is something you want to protect. Most people don't have money sitting around to replace all of their belongings and buy a new house if theirs burns down in a fire. If you do have this much money and are willing to take the risk of having to use it if your house is destroyed, then that's your choice. If not, it's wisest to maintain homeowners insurance for financial protection.
Remember Liability Coverage: Your homeowners insurance policy doesn't only provide protection for the structure and contents. In addition, it has liability coverage in case someone is injured on your property. A lawsuit can completely destroy your finances, costing you far more than the value of your home. Therefore, it's often wise to keep homeowners insurance coverage so you can have the liability protection.
Shop Around to Save: When you are keeping your homeowners insurance, there are still several things you can do to lower the cost as much as possible. For example, you may decide to increase your deductible to get lower premiums, while still having that coverage in place in case a catastrophic event occurs. You can also get comparative quotes directly on this website from a local independent agent to see whether switching to a different homeowners insurance company will save you money.
Although you don't technically need homeowners insurance if your house is paid off and you don't have a home equity loan or line of credit, most people choose to keep their coverage. After spending so many years paying off your mortgage, it would be a shame to lose your biggest asset in just one event you can't control.
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