How Not Having Homeowner's Insurance Could Cost You More

Posted on: 11 April 2017

If you're a homeowner on a tight budget, you might be looking for ways to save money. People who pay off their mortgage and own their home outright can decide whether they want to keep homeowner's insurance. If you're thinking of foregoing this coverage, whether you want to save money or you just don't think you'll ever need it, you may want to think again. Here are several reasons why cancelling your homeowner's insurance policy could cost you more down the road.

Future Insurability

You may not recall, but most insurance applications ask how long you've continuously maintained coverage, and they do this for good reason; insurance companies want to know how "stable" you are. You see, if you have a history of cancelling your insurance, most insurers see this as risky behavior and may be concerned that you'll cancel with them, too. Moving in and out of the market is somewhat of a negative, and as a result, if you decide to get coverage in the future, they might charge a higher premium for this type of behavior.

Also, if you've been uninsured for a while and then apply for insurance, some companies might suspect that you suddenly need to file a claim. This doesn't mean that your application will be denied. But it does mean that if something happens soon after getting coverage that causes you to file a claim, you might come under a little scrutiny.

Catastrophic Loss

Most people don't think about losing their home to a major event. And while less than 10% of homeowners file catastrophe claims annually, this is still an important part of your coverage.

A catastrophe includes a severe disaster—whether naturally occurring or man-made—that results in potential insurance claims that exceed $25 million, meaning multiple homes and businesses in your area are affected. For instance, if your home is damaged by a flood but no one else in the area was affected, then you would rely on the flood-coverage portion of your insurance to pay for the damage, not the catastrophic-loss portion.

If, however, you live on the coast and a hurricane sweeps through wiping out many other homes, then you would definitely be protected. Catastrophic events also include earthquakes, tornadoes, wildfires, tsunamis, volcano eruptions, and acts of terrorism.

Since catastrophic events are rare, you may not think they can happen to you. But they are also highly unpredictable, and you have no control over their occurrence. Even those who are wealthy and can afford a high deductible usually maintain homeowner's insurance to cover catastrophic events.

If you live in an area where a catastrophic event is likely to occur, you can get coverage just for that, and it's typically inexpensive. It's certainly a lot cheaper than taking a total loss on your home and your belongings should something happen.

Liability from Injuries

Okay, so maybe you're comfortable taking your chances with your personal and real property. But what if someone gets injured on your property and files a lawsuit? If a non-family member is hurt on your property, most policies will cover up to $100,000 worth of legal and court fees as well as any settlements paid out. And the good news is that there isn't a deductible for liability. If you want, you can even bump up the coverage to $300,000.

Your policy should also cover up to $1,000 in medical expenses and any damage that occurs to the structural part of your home and personal property as a result of the accident.

Without liability insurance, you'd have to pay out of pocket for legal fees, which might be higher than the final judgment amount. And a lot of policies offer liability coverage at a cheaper rate than property insurance. So it's really not worth foregoing the peace of mind just to save a few bucks.

At the end of the day, homeowner's insurance really is important to keep your investment safe. If you're looking for ways to save money on the premium, consider going for a higher deductible or eliminating portions of your policy that you are less likely to need.