Am I required to have homeowner’s insurance if I own a home? Consumers sometimes ask whether it is truly necessary for them to insure their homes and purchase a homeowner’s policy. Generally, the answer to that question is yes; however, there are some exceptions.
If you have a mortgage on your home, your lender will almost certainly require that you insure the home and that you add them as an additional insured mortgagee. If you fail to purchase the coverage or to provide them evidence of the coverage, they will likely put “forced placed” insurance in place and bill you for it. Forced placed homeowners insurance is usually much more expensive than what you would buy yourself and it usually has much more restrictive coverage terms.
If you do not have a mortgage, and your property is part of a homeowners association, you still may be required to provide insurance on your home in order to comply with the bylaws of the association.
Consumers who consider going without homeowners insurance usually fall into one of two camps: they are experiencing financial difficulties and can’t afford the insurance premium, or they are wealthy and feel that they can afford to self-insure any loss or damage.
Let’s address each of those situations.
I Am Wealthy And My Home Is Paid For, Do I Still Need To Buy Homeowner’s Insurance?
Even if you have no mortgage and no other legal requirement to purchase homeowners insurance, it is still generally advisable that you purchase the coverage. One of the principles of insurance risk management is “never risk a lot of money for a small amount of premium.” Your homeowner’s policy provides not only coverage on your home and contents, but also can provide coverage on your art, your jewelry and various other types of property. Your homeowner’s policy also likely includes personal liability coverage and a variety of coverage extensions. If you are wealthy, you have more assets to protect, and will likely want to purchase an umbrella policy above the liability limits provided by your homeowner’s policy.
There are ways to get the cost of the premium down, and to self-insure a portion of the exposure, without completely foregoing coverage. The most common way of doing so is selecting higher loss deductibles. Most insurers offer policy deductible options of at least $5,000, and the insurers who specialize in serving the wealthy often offer deductible options of $100,000 or more. These higher deductibles enable you to manage the premium downward while maintaining coverage for catastrophic property and liability events.
Even if you still decide to self-insure your property exposures, it is highly advisable to still purchase personal liability coverages and a personal umbrella.
I Can’t Afford My Homeowner’s Premium, What Should I Do?
If you have a mortgage on your home, failing to purchase homeowner’s insurance will cause your lender to secure forced place insurance on your property. They will bill you for this and it will usually be more expensive than buying the insurance yourself. If your home is paid for and has no mortgage, you may want to try to get the cost of your insurance down by shopping around, considering higher deductibles, considering named perils coverage, or buying lower liability limits. Going without insurance is generally an option that should only be considered when there is no money available to apply to the purchase of insurance while meeting the basic needs of living.
If your home is paid for, there may be ways to get some of the equity out of your home to help pay for the insurance. It would be truly sad if your home were paid for, it was your only sizable asset, and it burned to the ground without you having insurance on it.
If you find yourself in this situation, talk to an insurance agent and possibly a financial planner or lender to explore what options (other than going without insurance) might be available to you.
Before deciding not to purchase insurance, it is important that you speak with your insurance agent to understand the potential risks and pitfalls of taking this course of action. It is recommended that you meet with a professional insurance agent to review the particulars of your individual situation before making any insurance purchasing or self-insurance decisions.
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Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
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