In the Miami Herald story, the senior citizens profiled found themselves in a particularly challenging situation because the cost of home insurance in Florida has greatly increased. Squarely in the eye of hurricanes and tropical storms, Florida residents pay a high price for windstorm and flood insurance. Homeowners in areas not prone to regular confrontations with natural disasters may not have to make the same difficult decision as the Florida homeowners, though, as they likely have lower insurance premiums. Unfortunately, the perception of insurance as being “optional” is particularly risky in that it puts the homeowner completely at the mercy of a natural disaster or other type of peril when it comes to rebuilding a home and replacing lost valuables.
If you have thought about letting your insurance lapse, reconsider. Think about the benefits of insurance and the consequences of being uninsured. For most people, their home is their greatest asset. If you have significant equity in your home, an uninsured loss can wipe out that equity in one moment. Think of it this way: You would probably not consider putting your money in a bank that is not backed by the Federal Deposit Insurance Corporation (FDIC) and its protection for depositors. But by forgoing home insurance, you are essentially doing just that with your home — you are putting your money in your house with no protection whatsoever. If a natural disaster were to strike, your asset would be lost with no recourse.
Homeowners who have a mortgage are generally required by the bank to maintain home insurance because the bank needs to protect its asset, which is securing its loan. Even if you were able to avoid a requirement for home insurance, you need to be aware of your legal obligations to your mortgage bank. If you are uninsured and your home is destroyed, you’ll still owe the bank the balance of your loan. Without insurance, it’s unlikely that you would have the resources to repay the loan.
Along with protection for your home and personal property, home insurance also provides you with personal liability coverage. Without liability insurance, you are taking on additional risk in case you are liable for causing injury or damage to others. This liability protection is the reason why renters, who do not own their homes, still need to buy home insurance no matter where they live – Tulsa, San Jose, Omaha, Wichita – it’s very important.
When evaluating the cost of home insurance, it’s helpful to consider it as an integral part of the cost of homeownership, rather than as an optional expense. If finances become strained to the point where you have to reevaluate what you spend your money on, it’s a better idea to go without cable television or other luxuries rather than letting your insurance policy lapse.