Is homeowners' insurance required by law?

While it is possible to legally own a home without a homeowners’ insurance policy, if the home is financed with a mortgage, most lenders require insurance. Lenders may also require separate flood or earthquake insurance policies depending on where a home is located. The lender is simply protecting its investment by requiring homeowners to have access to enough funds to cover the replacement cost of the structure.

Any supplemental coverage for possessions is optional, and if the mortgage is small, homeowners may only be required to buy insurance that covers the lender’s share of the property. Homeowners are allowed to shop around and purchase any policy they see fit, but without any coverage, lenders may place the mortgage in default.

If Possible, Do Not “Go Bare”

In most cases, once a mortgage is paid off, homeowners have the option to discontinue their homeowners’ insurance policy because the lender’s investment is no longer at risk. With the rising costs of insurance, it may be tempting to “go bare” and do away with the policy altogether once given the opportunity. For most homeowners, however, their house is their most valuable investment, and they should do everything possible to protect it.

High-Deductible Plans Are Better Than Nothing

The two main reasons people choose to go without homeowners’ insurance are because of financial hardships or because they feel they can cover the cost of rebuilding themselves. For those struggling to pay premiums, raising the deductible as high as possible can cut costs significantly. Taking advantage of any qualifying discounts and trimming nonessential or optional coverage protects your home and saves money.

For those with significant assets, raising the deductible lowers the premium and provides protection against catastrophic loss. It is important to have access to enough cash to cover the cost of the deductible, which can be as high as $100,000.