With finances being tighter than ever, many families are looking for ways to trim their budget and reduce expenses. If you’re a homeowner and have been looking at your home insurance premiums, it might be tempting to think about getting rid of your insurance, even if just for a little while — but there are several compelling reasons why you shouldn’t.
Do You Have a Choice?
First of all, you should know that if you don’t own your home outright (that is, if you’re still paying a mortgage) you’ll almost certainly be required by your lender to pay for homeowner’s insurance. This is because your lender needs to protect what’s essentially their investment — if your home is destroyed or damaged in some way, your lender will be paying out of pocket for repairs, or worse, take a total loss. If your home is still under a mortgage, insurance is for the protection of the lender as much as yourself. The same is true if you’re buying a condominium or co-op — the insurance is there to protect the entire complex.
You may also be required to purchase some kinds of insurance depending on your geographical area. For example, if you live in an area prone to flooding, earthquakes, tornadoes, or other natural disasters, your bank may require you purchase special insurance against those types of events.
What Not Having Homeowner’s Insurance Could Cost You
So what happens if you’re paying a mortgage and you simply cancel it? The answer is: things will probably get worse for you right away. If your house is still under a mortgage, your lender will most likely purchase its own insurance policy and bill you for it. Even worse, the policy will likely be more expensive than any policy you find and purchase yourself. If you don’t pay the new premium, that’s grounds for foreclosure on your home.
On the other hand, if you do own your home outright, no one’s forcing you to pay for homeowner’s insurance. You can easily cancel it. However, insurance does offer a lot of peace of mind you’ll be living without if you cancel it. Here are a few of the risks you take:
- Liability. As a homeowner’s you’re personally liable for any injuries that take place on your property, if negligence can be proven. With homeowner’s insurance, the costs are covered by the insurance company even if you are found liable for the damage or injury. But without insurance, you’ll be paying out of pocket — and that could be a quick trip to bankruptcy.
- Similar to liability, a lawsuit can happen to a homeowner for any number of reasons. If someone slips and falls on your property, or a branch from your tree falls on a passer-by (or their vehicle), you could easily be sued for the damages. Without insurance, a homeowner would have to hire an attorney, and the legal fees alone could cost thousands, even before the cost of a trial and / or settlement comes into play.
- Natural Disaster. Living without homeowner’s insurance means you have no financial backup in the case of natural disasters like fire, flood, storms, hurricanes, or other natural phenomena. A simple fire, or even a severe thunderstorm, could damage or even destroy your home, and without insurance, you’ll bear the full financial brunt of those repairs. You could find yourself broke or even homeless in the wake of a major disaster.
- Disaster may not necessarily come in the form of a major natural event. Even a smaller event like a burglary can have major financial and emotional impact. Homeowner’s insurance can’t replace your priceless family heirlooms and memories, but it can help lessen the impact by reducing the financial loss you suffer from a burglary or theft.
How to Lower Your Homeowner’s Insurance Premiums
In short, living without homeowner’s insurance is almost certainly a terrible idea for you and your finances. However, there are some things you can do to help soften the blow of your homeowner’s insurance premiums:
- Shop around and compare rates. One of the easiest and most basic ways you can save money on insurance is by looking around for better insurance rates. There are plenty of convenient online tools out there to help make this task easier.
- Bundle your vehicle and home insurance. Your insurance company may offer the option to save some money by bundling different kinds of insurance together, such as vehicle and home insurance. Get in touch with them and see what kind of difference it might make in your premiums.
- Maintain a good credit score. While this is easier said than done much of the time, maintaining good credit will pay off in the form of lower home insurance premiums.
- Raise your deductible. If you feel comfortable with it, consider paying a higher deductible in the case of an event, so you can pay lower premiums in the meantime. Just take a hard look at your savings first and make sure you can absorb the possible financial blow.
- Inquire about possible discounts. Your insurance company may offer programs, discounts, and rewards you might not know about. Contact them and see what’s available that could save you some money.