The Importance of Homeowners Insurance
Everyone
knows that owning
a home and taking out a mortgage pretty much go hand
in hand, but what many people do not think about outright
is homeowners insurance.
The insurance industry (like the housing industry) has
hit a rocky patch, and rates have skyrocketed; making
it even more difficult for people to afford. Some are
even considering dropping their policies altogether.
What many people do not realize is the grave danger of
it.
Kay Bell, of Bankrate.com, explains the importance of
homeowner’s insurance in her article, “Homeowners
Insurance: Don’t go bare.”
“Homeowners
all across the United States are doing double takes as
they look at their annual insurance policy renewal statements.
A spate of natural disasters, accompanying insurance claims
and subsequent premium increases has pushed some homeowners
to the breaking point. Out of both personal and financial
frustration, some are considering dropping their coverage.
In the insurance industry, it's known as ‘going
bare.’ And while it might be tempting if you're
looking at a policy price that's tripled or quadrupled
in the last year, it's not a decision to be made rashly.”
The only people who could get away with out having life
insurance are people who are independently wealthy, and
could afford to loose their home and start all over. But
even in that case, it is just plain stupid.
The author points out that there are a few questions you
should ask yourself before dropping your policy. Such
as, “Can I afford to regularly put money into an
account to cover any storm damages,” “Can
I drop my homeowners policy,” and “How large
should my self-insurance account be,” among other
things.
For the few people that do not have mortgages, dropping
their insurance is an option, but a lot of times it is
not even possible if you have a mortgage
out.
“Can I drop my homeowner’s policy? If
you have a mortgage, the answer is probably ‘no.’
Because you have a lien on the property; most home loans
require you to have coverage that the lender finds suitable.
If the policy lapses, you can be in mortgage default.
If you are having trouble finding an insurer or paying
the premiums, call your lender to see if it can offer
suggestions and/or work with you to solve
the problem.”
If you decide to drop your insurance coverage it is essential
that you are able to put money each month into a savings
account to cover any damages that may occur to you home.
“Without the emergency self-insurance account, you'll
either be stuck not making repairs, borrowing money to
make them or putting them on credit cards, which could
create additional problems.”
When deciding how much to put into a savings account such
as the one mentioned above, you should estimate what it
would cost to basically repair your entire home if that
were to happen to you.
“Sit down and do a worst-case scenario in the event
of a natural disaster. Consider what it will cost to repair
or replace your home or major parts of it, such as your
roof or walls that are more exposed to potential damage.
Then there are your belongings: furniture, clothing, food,
exterior buildings, landscaping, and potential costs of
debris removal or demolishing partially standing structures
that need to come down for safety reasons.”
After looking at all of these costs and scenarios, you
may find that insurance premium does not look so bad anymore.
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