Paying off your mortgage and owning your own home outright is a milestone for any American. And as you consider the many ways this move changes your monthly budget and future outlook, you may wonder how it should affect your homeowners insurance. Do you still have to carry insurance? Should you downgrade yours? Or should you upgrade it? Here are a few important answers.
Do You Have to Carry Insurance?
Mortgage lenders usually require borrowers to carry home insurance in order to protect the lender. They want to make sure you have the funds to pay back the loan if something disastrous happens.
With no lender involved, a homeowner is generally not obligated to carry any insurance. Check with your local ordinances, though, to ensure you don't need some form of specialized coverage like flood insurance.
Should You Decrease Insurance?
Because home insurance is now up to you, it can be a good time to assess your home insurance options based on your personal circumstances. Few homeowners can comfortably afford to replace their entire home, so you should still purchase some type of coverage.
You may, though, be able to reduce the coverage limits in some ways. For example, did your policy have higher limits due to the amount of your loan? Then perhaps you could adjust those to better reflect current market prices. Or you could raise deductibles (and therefore lower premiums) if your financial situation means you can afford to pay more out of pocket without the monthly payment.
Should You Increase Insurance?
Don't be too quick to reduce insurance coverage, though. Most real estate appreciates in value, so you're more likely to find that your coverage limits are actually lower than what you need to replace the house. Similarly, analyze your personal belongings to see if you have enough coverage for what you currently own.
Without a monthly mortgage, too, it's a good idea to consider other ways you could increase protection. Could you spend the money to purchase a flood, hurricane, earthquake, or other specific policy or rider? This boosts financial protection at a fraction of the cost of a monthly mortgage.
Finally, remember that home insurance protects other aspects of your life. It extends to the personal belongings in your vehicles, many types of outdoor equipment and personal watercraft, dog bite coverage, liability for injuries in your home, and defamation lawsuits. Make sure you have sufficient levels of these protections in place.
Where to Start
Should you cancel, reduce, or increase your homeowners insurance now that you paid off your loan? Start finding out by meeting with an insurance agency in your area today.
Share21 December 2022
