Congratulations! You’ve paid off your mortgage. Your mortgage payment probably included extra funds for property taxes and insurance. Of course, you’ll still have to pay taxes. But now that you don’t have a lender requiring insurance, can you drop your coverage and save some money?
While you no longer have an obligation to purchase homeowners’ insurance, there are several good reasons to continue—or even potentially upgrade—your insurance coverage.
What homeowners insurance protects
Your lender insisted on an insurance policy to protect their financial interest in your property. If your home was severely damaged by fire or some other natural disaster, they required insurance so the loan balance would be paid.
The same would apply to you. If your home is damaged by fire, a natural disaster, or some other covered occurrence, insurance would pay for the repairs and, in most cases, for alternative living arrangements, if needed. If a tree falls on your house and puts a hole in your roof, no worries.
Insurance also protects you against liability. If someone is injured in your home or on your property, or if your dog bites someone, insurance will protect you. If they sue you, your insurance policy has your back.
Finally, what if you’re the victim of robbery or vandalism? Again, your insurance policy will help mitigate your losses.
Depending upon your policy, you may be covered for other contingencies as well, such as the expenses you might incur because of identity theft or if your daughter’s drone nosedives into a child on the playground. If your child’s laptop is stolen from their dorm room, that might be covered as well.
Risks of canceling your homeowners insurance policy
Without insurance, the cost and liability of anything that happens to your home falls squarely on the homeowner. The same applies to the liability if something happens to anyone on your property, even if it isn’t your fault.
That liability can extend to virtually any assets you have. If someone is injured in your home, even accidentally, you can be sued, and you could wind up losing your savings and investments. Homeowners’ insurance not only protects your home and belongings, but also your other assets.
When you’ve paid off your mortgage
Once you’ve sent in that last mortgage payment, you’ll want to contact your insurance company or broker/agent. Make sure they update the policy to remove the lender’s name. (If you make a claim, you want the check to go to you, not your former lender.) You also want all bills and policy notifications to come to you.
You should also discuss your coverage with your agent or broker. Your lender may have required certain coverages or limits; your current needs may be different. This is an excellent time to review your policy and make sure that it matches your current circumstances. In parts of the country where construction costs are skyrocketing, it’s especially important that your insurance will cover the costs to rebuild or repair your home if necessary.
Finally, look at your limits. You might not need to carry the limits your lender might have required. Your insurance agent can help you adjust your liability and structure coverage to better fit the value of your home. As a result, you might save money on your policy. You may also want to work with an insurance broker who can get pricing from multiple insurers. If your policy needs have changed, the list of potential insurers may change as well.
You’ll probably have to set up a new payment process, such as automatic deductions from your bank or credit union account, since your lender is no longer paying the insurance premiums on your behalf.
Your insurance agent/broker should be able to walk you through the process and help you tie up any loose ends. After that, enjoy life without that mortgage payment.