Updated: August 2016
When you purchased your home, your mortgage lender most likely required you to purchase a homeowners insurance policy. But once you've paid off the mortgage, do you need to keep that homeowners insurance coverage? You are typically not required to have homeowners insurance if you no longer have a mortgage, says the Insurance Information Institute (III), but there are some good reasons to consider keeping it. Here are a few reasons you may want to continue your homeowners insurance coverage after your mortgage is paid off.
If you've spent years paying off your mortgage, you know that your house is one of your biggest investments. A homeowners insurance policy can be a great way to help protect your home and what you've put into it. Forbes says it's a good idea to consider whether you could afford to repair or rebuild your house if it were damaged or destroyed.
Homeowners insurance typically helps cover the costs of repairs if your home is damaged due to a covered peril, such as fire, hail, lightning or vandalism, says the III. And, should you not be able to stay in your house while it is repaired or rebuilt, your policy may also help cover additional living expenses if you have to temporarily stay in a hotel.
In addition to providing protection for the physical structure of your home, homeowners insurance typically includes personal property coverage. That coverage may help you pay to replace certain belongings — furniture, clothing or electronics, for example — if they are destroyed by fire or stolen during a break-in.
Homeowners insurance usually helps protect more than just your home and the stuff inside it. A typical homeowners insurance policy includes liability coverage. That coverage may help you avoid paying out of pocket if, for example, a guest requires medical treatment after an injury on your property. It may also help pay for damages you accidentally cause to someone else's property (for instance, your child hits a ball through a neighbor's window) and even legal expenses in the event that you're sued.
When you weigh the potential benefits of homeowners insurance against the cost of its premium, you may decide homeowners insurance makes sense for you, even if you no longer have a lender requiring it. A local agent can answer any questions and help you tailor the coverage that is right for you.