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Do You Need Home Insurance if Your House is Paid Off?

WRITTEN BY: Amelia Ciffone

UPDATED: MAY 24, 2022 | 2 MIN READ

Most mortgage lenders require homeowners to maintain a home insurance policy as long as there is a loan on their house. Homeowner’s insurance covers the cost of repairs after a fire or storm damage, so the lender’s investment is protected until their original loan is repaid!

But what about homeowners who paid for a home in cash, or have a home that’s already paid off? 

While you are not legally obligated to have homeowner’s insurance for a house you own outright, you might not want to cancel your policy just yet! Consider some standard home insurance coverage options and their advantages so you can make the best decision for your house.

Why You Still Need Dwelling Coverage Insurance

“Extended dwelling coverage” pays for your home to be rebuilt or repaired after a fire or storm damage. You might assume that you don’t need this coverage if your area is not prone to heavy storms, brushfires, and other risks, but consider why you don’t want to forego this coverage either:

  • Even a small fire on the stovetop can cause thousands of dollars of damage to your home, and especially if the house is constructed with expensive, high-end materials like marble countertops or stone flooring. Without dwelling coverage insurance, you would need to pay for those repairs yourself!
  • You worked hard to pay off your house or to be able to afford to buy it outright. If your home is destroyed so are the savings you put into it. The few dollars you spend on dwelling coverage every month protects your home’s equity.
  • Before you decide that you could manage home repairs on your own, or even live with certain damage to your home after a disaster, remember that poor-quality repairs often decrease a home’s value by a significant amount, making it harder to re-sell.
  • Even a relatively mild storm can snap the branch of an old tree or uproot flagpoles, street lamps, and other heavy objects. If any such debris lands on your home, it can then cause thousands of dollars of damages very easily. 
  • Just one lightning strike can also cause extensive damage to your home’s roof, attic or crawlspace, and electrical systems. 

Every Homeowner Should Have Liability Insurance

“Liability” insurance pays for injuries that occur on your property. For example, if a neighbor falls off your porch and breaks an ankle, or is bitten by your dog, liability insurance would pay their medical bills. 

If you don’t have a dog or a front porch, you might not think you need liability insurance, but even a minor injury can result in thousands of dollars in medical bills. People are also often eager to sue in these cases! Think carefully about the dangers of foregoing liability insurance no matter the condition of your property, and consider maintaining at least a moderate amount of coverage.  

Why You Shouldn’t Skip Personal Property Insurance

“Personal property” insurance covers everything inside your home that’s not a permanent part of the structure. These items would include your own belongings as well as kitchen appliances, the water heater, and area rugs.

It’s easy to think that you don’t need personal property insurance if you don’t own a lot of “stuff,” or a lot of expensive, name brand items. However, while each item on its own may be affordable, it can be expensive if you have to replace everything at once.

Before you decide that you don’t need personal property insurance, try this:

  • Go from room to room in your home and make an inventory of all the furniture, including beds, couches, dining room sets, side tables, lamps, area rugs, and so on. Write down a ballpark figure of how much it would cost to replace those items.
  • Go through your closets and dressers and note how much it would cost to replace all your clothes, shoes, coats, and accessories. Be sure you include seasonal items that you might have tucked away in the basement or attic!
  • Make a list of all your remaining personal items, including televisions, computers, linens, and artwork. Be sure to include small kitchen appliances, such as your coffeemaker, microwave, and blender. Write down the amount it would cost to replace these items.
  • Write out how much it would cost to replace your home’s major appliances, such as the dishwasher, refrigerator, oven, furnace, water heater, and air conditioner.

Once you’ve written out an estimate of how much it would cost to replace all these items, you can then see the value of personal property insurance! If even just one room of your home was destroyed by a fire, for example, it would typically cost thousands of dollars to replace everything in that room. 

If you can comfortably replace all your belongings out of your savings, then you may not need personal property insurance after paying off your home. But if that cost would be a burden, you may want to retain at least some personal property insurance to help re-purchase your things.

You Might Have Some Leeway for Additional Living Expenses

“Additional living expenses” or ALE insurance covers costs you incur for everyday living while your home is being repaired after a storm or disaster. These costs might include a hotel bill, eating out because you don’t have a kitchen, and other expenses. 

ALE coverage is useful in emergency situations, but you might be able to forego this insurance. For example, if you have friends and family who could put you up for a few weeks when needed, or if you have a vacation condo or camper you wouldn’t mind using during this time, you might be able to carry a very low amount of coverage or skip it entirely.

With all this information in mind, be cautious about canceling your home insurance even if you own your house outright. Even a small disaster can result in very steep repair bills, often more than the cost of maintaining your home insurance over time!

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