For any home buyer, be it first time or experienced, homeowners insurance is considered an essential part of the equation. Indeed if a home is purchased with a mortgage, homeowners insurance is a required part of the transaction that must be maintained through the life of the loan. Other homeowners acquire property via different means, be it inheritance or buying the home outright. For individuals in this circumstance, homeowners insurance is not expressly required, and they can opt out of the coverage if they so choose. The thing is anyone who decides to “opt out” of homeowners insurance, be it the coverage entirely or certain key elements of the coverage, is taking a risk by waiving this important insurance option. Let’s investigate why often it’s more expensive to skip homeowners insurance.
Why Homeowners Insurance Is Skipped
When you first think about it, skipping homeowners insurance kind of makes sense. Owning a home in itself is expensive, and insurance premiums create an additional expense that can add to existing financial strain. For some homeowners who are in a position where insurance is not required, it’s easy to be tempted by the thought of dropping that extra cost. After all, year after year few if any claims are filed as part of a homeowners policy. If you haven’t filed a claim in a long while, it can be easy to doubt why you have the coverage at all.
On the other hand, wealthy homeowners see the equation from the other side. Those with significant assets assume they can absorb any potential damage to their property at a lower cost than a monthly homeowners premium. While this sort of homeowner is rarer than those on a tight budget, both make the mistake of skipping insurance coverage. Even those who have their home paid off can fall for the idea that they can skip homeowners insurance and save money. Sooner or later, they all learn it’s more expensive to skip homeowners insurance, and here is why.
It’s More Expensive To Skip Homeowners Insurance
Even if you think you’re confident in dealing with a potential insurance claim related to your home, it only takes one of these circumstances to change your mind, permanently. Here are some key reasons why skipping homeowners insurance is a bad idea:
Liability claims are probably the most common risk that is overlooked by those who want to skip homeowners coverage. It’s human nature to assume that you would do nothing to endanger the well-being of others, but sometimes your property, or sheer accident or circumstance, dictates otherwise. Fact is, liability claims can reach extreme amounts, so much so that wise homeowners choose to add umbrella insurance to cover a worse-case scenario. Homeowners insurance covers a wide variety of liability claims, even some that occur outside your home. Those that decide to forgo homeowners coverage may find a liability suit to be financially devastating if it should happen.
If you’re not worried about liability claims, which we would advise is a grave mistake, there’s a second, more tangible reason to keep your homeowners coverage. This involves the most obvious reason people purchase insurance – to cover significant damage to their property. In rare circumstances, events like fires or storms may damage your home beyond reasonable repair. This is called a catastrophic loss, and often the value of your home as-is becomes significantly reduced. With homeowners coverage, much of the damage is covered, even if you have to rebuild your home. Wealthy homeowners are also better off protecting their property from catastrophic losses. No reasonable amount of premiums paid can match the cost of rebuilding a home after a large loss.
Finally, insurance companies track payment and claim history just like credit. Those who have little to no record (or a dated record that is many years old), will impose higher rates on customers with a gap in insurance history. This is for good reason. Insurance customers who pay premiums in advance and refrain from excessive claims are offered better rates. Just like credit history, companies prefer to work with reliable customers, and they are willing to provide better rates and options for those with a positive history. In short, it is advantageous to have an established insurance history, and it can help earn you the best coverage at the lowest rate.
Tips For Those On A Budget
As we’ve just examined, it can be more expensive to skip homeowners insurance than to maintain it. Yet what can you do if your current coverage is too expensive? You actually have a few options to maintain homeowners coverage but adjust it to your needs and budget. The first is to raise your deductible, which helps lower your monthly premiums. While you will have to meet a higher deductible in the event of a significant claim, those who are worried about their current premiums will see some savings. As a second option, you can contact an insurance broker like Square State to shop coverage options. Since we work with several trusted insurance carriers, we often can find similar insurance plans that match your previous coverage at a lower rate. Finally, don’t forget to pay your insurance coverage up front, as you’ll receive a paid in full discount vs. going month to month.
As you can see, it truly is more expensive to skip homeowners insurance versus maintaining active coverage. The reasons are easy to understand. You face liability claims, catastrophic losses and an absent insurance history when you forego this important insurance product. Here at Square State Insurance, we’d never advise a client to skip homeowners coverage no matter their situation, but we can customize the coverage they receive to their individual needs. If you’d like to learn more, we encourage you to contact us or submit a request for a free quote on our site.