Mortgage Payoff: Reasons to Keep YourHomeowners Insurance

If you've recently paid off your home mortgage, you may wonder whether you can drop your homeowners insurance. While you are no longer obligated to a lender that requires you to buy homeowners coverage, you still have many practical reasons to continue to carry a policy. Read on to learn why you should keep your insurance, even if the bank no longer requires you to do so.

One of the most important reasons to continue to buy homeowners insurance after you make your last mortgage payment is the financial protection it offers. After all, your home is one of your biggest assets, if not the biggest asset you own.

No law says you must have homeowners insurance after you pay back your mortgage loan. But if disaster strikes and your home sustains serious damage or is a complete loss, you'll be paying for the loss out of pocket. For many people that means borrowing money. If you have insurance, you won’t have to incur such huge costs to repair or replace such an expensive asset that you’ve already payed for. Keep your insurance so you can protect your investment.

Aside from providing you with financial protection for the structure itself and the belongings inside, homeowners insurance provides liability coverage. Liability insurance can literally save you from financial ruin if someone gets injured on your property and then sues you.

An option to maintain liability coverage if you drop your standard homeowners policy is to purchase a separate liability rider. If you buy basic hazard insurance, you can include liability coverage with that too.

Another consideration is where you would go if disaster struck and your home became uninhabitable, like after a fire. Whether your home is severely damaged or totally destroyed, you'll need somewhere else to live during the repairs or rebuilding.

A standard homeowners insurance policy includes additional living expenses, or loss of use, coverage. The coverage pays for extra living expenses such as hotel stays or rent, eating out, and storage fees while your house is uninhabitable.

Homeowners insurance caps additional living expenses — generally to a percentage of the dwelling coverage you purchase. However, without it, you may have nothing to fall back on if your home isn't livable for a time, and you're faced with temporary housing costs.

Homeowners insurance is expensive, and you should be as smart as possible about how much you pay. If you’d like a discount, you may be able to get one if your homeowners insurance premiums include a claim-free credit , which can save you as much as 20 percent. Similar to a long-term customer discount, if you don't file a claim for a certain number of years, the company rewards you with savings.

Don’t let insurance payments be the reason you don’t get coverage, especially if you can get a discount. The benefits are worth the cost.

Something you may not immediately think about once your mortgage is paid off is removal of the bank, credit union, or mortgage company from your homeowners insurance policy. Otherwise, if you need to file a claim, the insurance company will issue a settlement check to both you, as the homeowner, and the lending institution.

The lender no longer has a financial interest in the property after you pay the mortgage loan in full. Therefore, you should contact your insurance company and request that the mortgagee be removed from the policy. That makes you the sole named insured entitled to claim payments.

After paying off your mortgage loan, contact Coastcomp Insurance Agency when weighing the pros of homeowners insurance coverage. We can explain the financial advantages of continuing to carry a policy.