Is House Insurance Cheaper Without a Mortgage?

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Mortgage lenders require homeowners to get insurance policies. Your lender doesn’t want anything to happen to your house just like you don’t. Payments are sometimes included in escrow accounts, so you might not think about them often on their own. But, it can be frustrating when you do have to pay that premium every month or year.

Let’s discuss if house insurance gets cheaper without a mortgage and the consequences of going without homeowners insurance if you decide to end your policy.

Is House Insurance Cheaper Without a Mortgage?

No, house insurance isn’t any cheaper without a mortgage. Your home still has the same risks as it had while you were paying off your mortgage. You’re no longer required to have a policy without a lender, but very few people recommend dropping homeowners insurance after you pay off your mortgage.

Having home insurance isn’t required by law. Instead, mortgage lenders require their borrowers to get policies to protect both parties’ investment in a property. This way, if something happens to your house, both you and your mortgage company can be reimbursed sufficiently by your insurer.

After you pay off your mortgage, no one will be forcing you to maintain coverage. While it sounds tempting to drop your policy to save money, it’s not a fiscally wise move. You’ll immediately be on the hook for all damages your house can suffer, from windstorms to fires to theft. You’d need to have plenty of money on hand to afford a worst-case scenario comfortably.

What to Do With Home Insurance After Paying Off Your Mortgage

After paying off your mortgage, there will be some slight changes to your home insurance plan. You can also take some steps to save money while maintaining coverage. Firstly, you should notify your provider that you finished paying off your mortgage as you’ll need to adjust some details on your policy.

Remove your lender as a loss payee on your policy. Lenders are typically listed on the declarations page of your policy as a loss payee, meaning they’d get some of the money if you received compensation for a home insurance claim. Your insurer would make a check out to both you and your lender after a successful claim.

After you pay off your mortgage, contact your provider. Tell them you’ve finished paying off your loan. They’ll walk you through the exact next steps, but you should generally remove your lender as a loss payee since they’re no longer entitled to any payments. 

You should also let your insurance company know how you’ll pay going forward. Make sure your address is accurate on your plan so you get all the bills, and remove your lender’s address.

Also, if you’re ending your escrow account, note that you’ll need to remember to make your insurance payments on your own now. Be sure you figure out whether you want your insurance premiums to get taken out of your personal account automatically or make other arrangements to handle them yourself.

Does Homeowners Insurance Go Down When Mortgage Is Paid Off?

Your home insurance payments probably won’t go down after you pay off your mortgage, but there are things you can do to save money on premiums while maintaining coverage.

Insurers consider a lot of factors when determining policy rates, but the existence of a mortgage isn’t one of them. Calculating a home’s risk often entails characteristics of the home itself, like its age, construction style, and location. Some personal aspects about the policyholder, like claims history and presence of pets, are factored in, too. 

Some insurance companies consider policyholder credit history when determining rates, too. Paying off your mortgage likely won’t affect your credit too much unless you’re going to pay a large lump sum at once. Even if it does raise your credit score, it likely won’t raise it enough to single-handedly change your insurance premiums. There are too many other more important considerations carriers take into account.

How to Save Money on Home Insurance After Paying Off Mortgage

Even though your insurance rates likely won’t decrease after you pay off your mortgage, you can still lower your premiums by altering your policy slightly. If you’re looking to save money, you can raise your deductible

Your deductible is the amount you must pay for damage before your insurer steps in to cover the rest of the bill. If you opt for a higher deductible, meaning you pay more out of pocket before invoking your insurance company’s help, your carrier will lower your monthly premiums correspondingly. This is an easy way to lower your home insurance after paying off your mortgage.

Common home insurance deductibles are $1,000 or $2,000. Raise your deductible to lower your premiums if you can comfortably cover a higher amount out of pocket. Some carriers offer $2,500 or even $5,000 deductibles. 

You can always shop around if you’re unhappy with how much you’re paying for coverage. Every insurer determines premiums differently, and you may be able to find adequate coverage at a lower price with another provider.

With the advent of modern technology, shopping for insurance is easy and free. Quoting platforms like ours at Clovered can help you find carriers and compare policies completely online. You can also call us at 833-255-4117 to speak with one of our licensed agents, who would be happy to answer your questions and help you find a policy. 

We partner with many of the top insurers in the nation, and we’ve helped thousands find the coverage they need at the price they want.

What Happens if You Don’t Have Homeowners Insurance?

If you drop homeowners insurance after paying off your mortgage, you’ll be personally liable for all home damage. Going without homeowners insurance is a risky and potentially very costly decision. 

Dropping home insurance after paying off your mortgage may save money in the short term, but it could end up costing you in the long term if something happens to your house or someone sues you. A typical homeowners insurance plan financially protects your property from:

  • Vandalism
  • Theft
  • Frozen pipes
  • Damage caused by vehicles
  • Damage caused by aircraft
  • Rioting or civil disturbances
  • Fire or lightning
  • Windstorms or hail, such as a hurricane or tornado
  • Damage from smoke
  • Damage caused by heating, air conditioning, or plumbing
  • Damage due to snow, ice, or sleet
  • Damage from a water heater, including cracks, burns, or tears
  • Damage from electrical currents, such as downed powerlines
  • Explosions
  • Falling objects
  • Volcanic eruptions

So, if you decide on going without homeowners insurance, you’ll have to cover the repairs if any of these perils damage your property.

A commonly overlooked portion of a plan when going without homeowners insurance is the liability and medical payments coverage that protects against lawsuits and injuries that can occur on your property. If someone gets hurt, you may have to pay your legal fees and their medical bills, which can total hundreds of thousands of dollars depending on the severity of the incident.

Going without homeowners insurance is very risky, especially when there are so many tools you can use to help you find a good policy at a fair price.

It's Time to Switch Your Homeowners Insurance

We partner with the nation's top homeowners insurance companies so you can get a custom policy at an affordable price.

The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.

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