Is Homeowners Insurance Really Necessary? Yes, and Here’s Why

If you own a home, you are likely all-too-familiar with homeowners insurance. These policies are meant to protect your investment in your home, covering damages and loss in the case of fire, natural disaster, vandalism, theft, and even general wear and tear (within reason) that results in catastrophic damage; think: a pipe bursts in your home’s ceiling and you end up with extensive water damage. We all know it’s necessary to have insurance coverage to buy your home, but do you have to keep coverage long term once the home is yours?

Technically, no…but that doesn’t mean you should go out and cancel your policy to save cash. Why?

Failing to have adequate coverage for your home could end up putting your mortgage loan in default. Unless you own your home outright, many banks require you to maintain a policy to protect the house. After all, it’s their investment too until you’ve paid off the loan! Even if you do own your house outright though, there are many reasons you should keep coverage on your house. These include:

• Affording repair and/or replacement after a natural disaster or fire. Just because you have a significant amount of savings in the bank, that doesn’t mean you’re prepared to cover EVERY expense if your home and possessions are lost in a house fire, hurricane, or flood. When you consider all of your appliances, televisions, computers, clothing, priceless items, pets, and more, the cost adds up astronomically. Homeowners insurance takes most of this burden off your shoulders in the event of a catastrophe.
• Protecting yourself from legal action. If someone gets injured on your property, YOU are liable. That means, if they choose to sue, you better be ready to pay up if you don’t have insurance. Since lawsuits can go into hundreds of thousands of dollars (or more), it’s a better financial decisions to keep an insurance policy that provides legal protection in the case of a lawsuit.
• Protecting your credit score! Your credit score affects SO many parts of your finances. From interest rates for buying a vehicle, to applying for credit cards, your credit score will determine how easily, and affordably, you are able to take out a loan or request credit. When you drop homeowners coverage on your house, your credit score can take a major hit via the bank’s records, especially if your loan goes into default as mentioned above!