While drivers on the road must have car insurance, not everyone is required to have a homeowners insurance policy, according to Insurance Information Institute. Many lenders will mandate that you get coverage when you first buy your home or are paying off a mortgage, but you can legally let your policy lapse in most situations. Though not having to pay premiums may sound tempting, consider the risks and costs if, for example, a natural disaster hits and destroys your home.
If you no longer have a homeowners insurance policy, you are not covered if something happens to your home. As a result, you will end up having to pay repair or replacement costs out of pocket. Here is what is at risk without a homeowners insurance policy:
“You are not covered if something happens to your home.”
Coverage for damage to your property
If your washing machine sparks and your home catches on fire while you are at work, or a hail storm damages the home’s roof or siding, you will have to pay for these repair costs yourself. While difficult, what happens if your home is completely destroyed in a fire or tornado? Not only will you face rebuilding costs but where will you live while you are rebuilding? Can you afford to rebuild the home yourself?
As mentioned previously, most lenders require you to have a specific level of coverage for your homeowners insurance policy while you are paying off your mortgage. If you let your policy lapse or cancel it altogether, your lender will be notified. If this occurs, you may be at risk for defaulting on your mortgage, according to SF Gate.
In addition to maintaining homeowners insurance coverage, it is also important that the replacement cost coverage in the policy be sufficient to rebuild the home. This is a different value than the market price of the home or the mortgage value.
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