When you purchase a home with a mortgage, the lender you have will require that you carry a homeowner's insurance policy on the house for an amount that covers the balance of your loan. When you make the last payment on your house, your lender will no longer have control to tell you that you must keep this insurance, which means you have the right to cancel your plan. Is canceling your homeowner's insurance a good idea, though, after paying off your house?
It will save you money if you cancel
The reason you are probably thinking about canceling your home insurance is to save money. After all, homeowner's insurance can be expensive, as the average cost is around $1,083 per year. If you want to cut expenses, this would be an easy way to cut around $100 per month, but before you do this, you should consider the risks you will instantly assume if you are living without home insurance coverage.
You will lose protection of your house
The main risk you face if you cancel your house insurance is you will have no coverage for your home or the things you have in it. If your house burned to the ground, you would not receive a check from your insurance company to rebuild. If you wanted to rebuild, you would have to pay for it out of your pocket or take out another loan to pay for it. Because of this, canceling your homeowner's insurance is probably not a good idea, unless you do not mind the risk of losing everything you own and having to pay to replace it all out of your own pocket.
You could always change the policy
One option you could consider is making a few changes to your policy instead of canceling, and if you make the right changes, it could reduce your policy premiums. For example, if your house is now paid for, you probably could afford to raise the deductible on your policy to a higher amount. Doing this alone will usually result in significant savings on a person's home insurance costs.
Canceling homeowner's insurance after paying off your house is not generally a wise idea, unless losing the house and everything in it would not affect you financially in any way. Instead of canceling the policy, you should consider updating it, and you can do so by talking to a homeowner's insurance agent.Share