You might want to save some money by not carrying homeowners insurance. However, unless you own your own home, chances are you won't be able to go without homeowners protection.
The terms of your mortgage agreement probably stipulate that you must have homeowners insurance; otherwise, you can be declared in default. Should you be declared in default of your mortgage agreement, your mortgage can be called in and the outstanding balance must be paid immediately.
To avoid this possibility, most banks or mortgage holders insist that you provide proof of coverage every year.
Monthly Escrow Accounts
Many lenders even set up escrow accounts to ensure that enough money is set aside every month to meet these obligations. Your payment into the account covers the monthly principal and interest for your mortgage, as well as the cost of your homeowners insurance and your real estate taxes. The lender then makes the payments from this account, on your behalf, to cover any real estate taxes and insurance premium.
Standard homeowners insurance policies usually do not cover damage due to floods. Be sure to review your policy to determine if this coverage is included. If you don't see any reference to flood coverage, you may not be covered in the event of a flood.
Flood insurance is available through the National Flood Insurance Program. If you're in a flood zone, your lender may insist that you have flood insurance in addition to your homeowners policy.
Even if your home is not directly in a flood zone, but is near a body of water or a coastal area, it's usually a good idea to have flood insurance. Even damage from a rare flood can be quite extensive.
Protect Your Home--It's Your Biggest Investment
Once you own your home outright, you are not required to buy homeowners insurance. However, this doesn't mean that you should forgo coverage.
Besides being your primary residence, your home is most likely your largest asset.
Unless you are one of the small number of people who can afford to repair or even replace your entire home and its contents, not having homeowners insurance can be a financial disaster.
Make sure to protect your real estate investment, compare quotes for homeowners insurance by entering your zip code in the form above.
Sanford Ellowitz is a New York State licensed insurance agent. He is also a Certified Financial Planner and a Certified Employee Benefit Specialist. He has over 25 years experience in the insurance and financial services industries. His experience includes financial analysis, product development and marketing. He provides insurance planning and product sales.
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