As a homeowner living on a budget, it’s definitely understandable that you might question the value and wisdom of purchasing home insurance year after year. You might decide to forgo the coverage when you have been claim-free for several years, thereby thinking that you are not actually “using” your coverage. Well, before you actually drop your coverage, you might want to think about the repercussions of going “bare,” as it’s known in the insurance world. It’s entirely possible that you end up paying more for not having insurance than actually buying a policy each year. Here are some ways not having a policy can actually cost you more.
- Catastrophic LossEven the very wealthy who can afford to maintain very high deductibles on their insurance still tend to carry some insurance for catastrophic losses. These are the rare, but very expensive losses that can wipe someone out financially for a long time. However, due to their low probability and low frequency of occurrence, coverage is usually pretty inexpensive. If you are looking to save money, considering raising your deductible. This way you will save on day-to-day premium and pay for minor to moderate losses but will be covered for a rare, catastrophic loss. When you consider how much value you will get out of your policy in the event of a catastrophic loss, the money is well-spent.
- Future InsurabilityHave you ever noticed that almost all insurance applications ask you how long you have continuously maintained insurance? The insurance companies ask because they perceive someone who is continuously insured as a stable, reliable risk. If you jump in and out of the insurance market, you present a degree of uncertainty to the insurance company. Additionally, if you have not been insured for a long period of time and all of a sudden want to buy insurance for the first time, this makes the insurance companies suspicious. Could it be that you intend to file a claim in the near future? Even if that’s not the case, you will face some skepticism in the future when you try to go back into the marketplace. If you are able to find coverage at that time, it will likely cost you a lot more than if you had continuously maintained coverage.
- Liability ClaimsEven if you are completely comfortable rolling the dice and taking your chances with your property, you still have to consider the benefit of liability coverage that is part of the home insurance policy. What if you are involved in a claim and are sued by another party? Without any liability insurance, you are exposing all of your personal assets in the event of a serious lawsuit and judgment against you. One of the greatest benefits of liability insurance is the legal defense it provides you in the event you are sued. In many circumstances, the cost of a hiring an attorney to represent and defend you can cost more than the judgment itself. Without any liability insurance, you are going to bear this cost yourself. Additionally, you might pay a higher rate to the attorney who likely has a negotiated lower rate with insurance companies. Liability coverage is usually even less expensive than property insurance, so it would be foolish to give up $1 million in coverage to save a couple hundred dollars each year.
Before you make any decisions to not maintain home insurance, think about how much benefit you would potentially derive versus the cost of not being insured. In the end, it should be a pretty simple equation.