If you own a home, it’s likely one of your most expensive assets, so you should make sure it’s financially protected with homeowners insurance. Homeowners insurance isn’t required by law, but it is typically required by most mortgage lenders. If your home is paid off, you may feel like you don’t need homeowners insurance, but going without coverage is actually a bad idea. Here’s why.
1. Homeowners insurance won’t pay out my claim
While homeowners insurance doesn’t cover all types of property damage, a typical policy will pay you out for losses caused by a covered peril, like fire or weather-related damage. A standard homeowners insurance policy protects you against 16 different perils.
Below are common perils that homeowners insurance covers:
Fire and smoke
Wind and hail
Sudden and immediate water damage
It’s true that there are certain types of damage that homeowners insurance will not pay for, like neglect and general wear and tear. Homeowners insurance also doesn’t cover flood or earthquake damage, however you can always add coverage to your policy or buy standalone flood or earthquake insurance to fill in those coverage gaps.
2. Homeowners insurance isn’t required by law
While homeowners insurance is not required by law in any of the 50 states, most mortgage lenders will require you to purchase insurance as part of your loan agreement. Lenders require homeowners insurance to protect their investment due to the risks associated with loaning such large amounts of money.
Just because something is technically optional doesn’t mean it’s not valuable, so even if you bought your home with cash and don’t have a mortgage, you should still consider homeowners insurance. If you don’t have homeowners insurance, you risk footing the entire bill if disaster strikes.
3. I can afford to pay for repairs out of pocket
This may be true for minor and moderate repairs, but rebuilding a house after a fire or tornado could run you hundreds of thousands of dollars. Even if you are a skilled builder, you’ll want to focus on getting back on your feet after a disaster, not coming up with the funds to rebuild your entire home and replace all of your belongings out of pocket.
4. Homeowners insurance isn’t worth it
Homeowners insurance costs around $1,899 per year on average, according to our analysis of 2022 home insurance rate data from around the country.
Although that isn’t cheap, homeowners insurance includes several valuable coverage types, and each offers a different kind of protection.
Below are the different coverage components that make up a standard homeowners insurance policy:
Dwelling coverage - Protects the structure of your home and built in appliances
Other structures coverage - Covers detached structures of your home, like a gazebo or shed
Personal property coverage - Protects your personal belongings from damage and theft both inside and outside your home
Loss of use coverage - Pays for additional living expenses while your home is being repaired. Can cover the cost of hotel stays, food, public transportation, and more
Personal liability coverage - Pays for legal or medical expenses if you are found liable for injury to someone else or damage to their property
Medical payments coverage - Pays for medical bills if a guest is injured while in your home, regardless of who is at fault
Homeowners insurance companies also offer various discounts, like safe home or bundling discounts, to make premiums more affordable.
5. I don’t need home insurance because nothing bad ever happens to me
No homeowner is immune to risks. Whether you own a single-family house, condo, or mobile home, you’ll need some sort of insurance policy to protect it from property loss. Even if you live in an area with low-crime or mild climate, your home could still be susceptible to the unexpected.
For example, a pipe could burst in the middle of the night and damage your floors, or a tree could fall on your roof, or an electrical fire could burn down your garage. If you don’t have homeowners insurance, you’d have to pay for all of that out of pocket.
Homeowners insurance protects your liability, too. So if you don’t have insurance and someone gets hurt while using your trampoline, or your dog gets loose and bites someone, you’d be on the hook for any medical or legal expenses that could potentially come your way.