It’s a wonderful day when you finally pay off your mortgage. After thirty years, you finally get to free up about a quarter of your income! But in the aftermath of your mortgage-burning ceremony, don’t forget about your homeowners insurance.
Mortgage companies will require a homeowner to purchase insurance on the property that’s been financed. While they don’t necessarily do this for the borrower’s benefit, it’s certainly in the homeowner’s best interest to maintain coverage on their home. In the event of a total loss, homeowners insurance would pay off your remaining balance on your mortgage. This means you wouldn’t be stuck paying off a mortgage for a house that doesn’t even exist anymore.
If you don’t owe anything on your home, it’s still a good idea to maintain homeowners insurance. If you were to lose your house to fire, tornado, or any of the other things that could destroy your home, the insurance money would provide you the funds to not only rebuild your home, but also to find other accomodations during the rebuilding process. Otherwise, you’d have to depend on your cash reserves and investments. Replacing a $100,000 house out of pocket could put a serious dent in your retirement savings!
It’s also important to know the replacement cost of your home. You may have purchased that house for $20,000 thirty years ago, but it’s probably worth considerably more on the market now, and the cost to build a similar new home could be even more. If you do have a mortgage, the lender probably only requires you to have coverage equal to the purchase price. If your coverage is less than 80% of the replacement value, you may get hit with a larger deductible than expected if you have a claim.
Contact us today for an estimate on homeowners insurance, or for a free evaluation of your current policy.
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