Should You Keep Homeowner's Insurance After Paying Off Your Mortgage?

Posted on: 19 February 2019

One of the top reasons people have homeowner's insurance is to fulfill the requirement their lenders have for this. When you have a loan on your home, you cannot go without home insurance. Your lender will make you purchase a policy and will even purchase a policy for you if you do not do so on your own. When you pay off your mortgage, though, this requirement will no longer be valid, which means you could cancel your homeowner's insurance if you want to. Before you decide to do this, there are several things you should consider. 

Homeowner's insurance protects your house and things

While you have the right to choose whether you have home insurance or not if you own your house free and clear, you should remember that your home insurance is the only protection you have for your home and personal belongings. Without having insurance, you are taking a big risk. Imagine if a fire started in your house, and you lost everything you owned, and you had no home insurance coverage. Would this affect you financially? For most people, it would. You would lose your entire house and everything you had in it, and you would not receive any compensation from an insurance company. This could be devastating, and that is why it is important to keep home insurance even when you are no longer required to have it.

You could make adjustments to your policy instead of canceling it

A lot of people will make adjustments to their policies after making the last payment on their mortgages, and this is a good idea to do. For example, you could adjust your policy to have a higher deductible. This would cause your premiums to drop, and you would still have the exact same coverage. The only difference is that you would have to pay more money out of your pocket if you filed a claim.

You should always update your policy when you pay off the loan

One thing you should always do when paying off a mortgage is to contact your home insurance agency to let them know. When you do this, they can remove your lender as a lienholder on the property, and this is important if you ever have to file a claim on your policy.

While making adjustments to your policy after paying off the loan is a good thing, canceling your policy is probably not a good choice. To learn more about home insurance coverage, talk to an agent of your choice today.