In this article:
- What Is Homeowners Insurance?
- 1. Possibly Losing Your Home
- 2. Not Being Able to Make Repairs
- 3. No Financial Help if Your Home Is Robbed
- 4. No Financial Protection From Problems Created by Guests
If you've been looking to cut costs, you may be tempted to stop paying for your homeowners insurance. But it's hard to imagine a scenario in which that would be a good idea.
Most lenders require you to keep homeowners insurance for as long as you're paying your mortgage. But unlike car insurance, there aren't federal or state laws that require a homeowner to have homeowners insurance. While you could come up with a reasonable-sounding argument to ax homeowners insurance from your budget, not having an active homeowners policy can expose you to some major financial risks. Before you reduce or remove your homeowners insurance, it's crucial to know the risks involved.
What Is Homeowners Insurance?
Homeowners insurance pays to repair or even replace a home in the event of something unexpectedly going wrong.
If your home caught fire or a tree collapsed in a storm and toppled into your living room, your homeowners insurance would typically pay for repairs or replacement, though you'd have to pay out the deductible first. Insurance also sometimes will pay for things that go wrong inside your home, such as if a thief cleans out your place.
While there is no law saying that you have to have homeowners insurance, most mortgage lenders require you to buy it on condition of approving you for a loan. Lenders want to know that, before they loan you the money to buy a home, an insurance policy will protect that asset.
There's no way to predict homeowners insurance costs generally because so many factors go into calculating a premium, from the size of the home to what part of the country it's located in. Still, the national average cost of homeowners insurance was $1,311 a year in 2020, or $109.25 a month, according to the most recent numbers from the National Association of Insurance Commissioners. Generally, the more luxurious the home, the higher your insurance premiums will be.
Still, if you aren't convinced that having homeowners insurance is necessary, here are four reasons why you may want to reconsider that stance.
1. Possibly Losing Your Home
If you're paying a monthly mortgage, you probably have no choice but to pay for homeowners insurance. If your mortgage lender requires it and discovers your home isn't insured, it could initiate foreclosure, resulting in the loss of your home. Or the lender might simply force you to get homeowners insurance by getting new coverage for you and adding it to your monthly mortgage payments.
Of course, if your home is already paid for and you drop your coverage, foreclosure is one issue you won't have to worry about.
2. Not Being Able to Make Repairs
A natural disaster could produce its own financial disaster. In some states, like Florida and California, homeowners are having trouble finding insurers to cover them for certain natural disasters, like hurricanes and wildfires. Or, you might feel like the odds of a natural disaster befalling your home is small, and thus an acceptable risk to take.
Still, for much of the country, most insurers do cover homes in the event of a windstorm such as a tornado, hail damage, fire and lightning strikes. If a tornado leveled your home and it would be difficult or impossible for you to pay to rebuild a new one—and replace all of your belongings—that's a strong argument for carrying homeowners insurance.
3. No Financial Help if Your Home Is Robbed
You'll want to check any policy to make sure theft is covered, but generally, homeowners insurance covers a home that is burglarized or vandalized.
You may not feel like you have much worth stealing, but if you'd struggle paying to replace your laptop, TV or anything else you can imagine thieves taking, homeowners insurance would soften the financial blow by replacing stolen items.
Homeowners insurance also sometimes protects you when your belongings are taken outside of the home as well, such as if there's a theft in your hotel room or your child's college dorm room. In other words, without the compensation of homeowners insurance and having to replace everything yourself, you may feel like you were robbed twice.
4. No Financial Protection From Problems Created by Guests
If an acquaintance at a party you're giving trips on your stairs, gets injured and decides to sue you, your homeowners insurance policy will likely cover your legal bills or any financial punishment a judge metes out. But without a homeowners insurance policy, you'd be on your own.
Of course, guests could accidentally damage your home, or you could damage your guests' belongings. Typically, homeowners insurance would pay to cover those costs too.
The Bottom Line
Managing money can be a major challenge, and it's understandable why anyone struggling financially might consider dropping their homeowners insurance. But removing your homeowners insurance policy from your budget in order to save money is a big gamble. If something goes wrong with your home, dropping your homeowners insurance is a decision that could end up costing you far more money than you're likely to save by canceling it.
