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You paid cash for your home and don’t have a mortgage? Whaaaat? Congratulations, that’s a HUGE accomplishment!
But it's also a big expense, so we understand if you want to cut back on spending right now. You may even wonder if you can opt out of home insurance since you don’t have a lender requiring you to get it.
We understand the urge to save a few bucks. Trust us, we’ve all been those broke college students eating nothing but ramen for weeks on end at one point in our lives.
But you aren’t a broke college student anymore -- you’re a homeowner! You eat steak and lobster now!
… Just kidding. We know you’re probably still on a budget, but trust us when we say that homeowners insurance probably isn’t one of those places you want to cut costs.
At Berry Insurance, we’ve seen a number of very expensive home insurance claims -- claims you could have to pay for out of pocket if you don’t have insurance.
In this article, we’ll give you the truth about if you really do need homeowners insurance if you don’t have a mortgage. Then we’ll explain all the ways home insurance can protect you, so you can make the decision for yourself.
Do I need homeowners insurance if I don’t have a mortgage?
If you are financing a home, your lender will require you to have a thorough homeowners insurance policy. This will be the same situation if you have a home equity line of credit.
But what if you don’t have a mortgage or equity line of credit? Do you need homeowners insurance then?
Well this depends on your definition of “need.”
If you don’t have a mortgage, are you legally or contractually bound to have home insurance? No.
BUT WAIT! Before you go opt out of a home insurance policy, give us a chance to elaborate.
You may not “need” home insurance, but unless you’re a huge risk-taker with the ability and willingness to cover hundreds of thousands of dollars (or more) out of pocket, trust us … you need it.
Homeowners insurance covers a lot of property damage or liability situations. Without it, there is potential for countless unexpected scenarios to leave you with a large out-of-pocket expense.
Don’t believe us? Below, we’ll give you an overview of everything homeowners insurance covers so you can get a good idea of all the ways it can help you.
The sections of a homeowners insurance policy
A homeowners policy is made up of six main types of coverage, with some optional coverages available.
Dwelling:
Dwelling coverage is probably what you think of when you think of homeowners insurance. This section of the policy covers the actual structure of your home if it is damaged from a number of causes (detailed below.)
Other structures:
This section of a home insurance policy covers damage to structures in your yard, but not attached to your house, such as fences, garages, sheds, pools, and driveways.
Personal property:
Personal property insurance includes all of the “stuff” you own in your home or yard. If your property is damaged or stolen, this section of the policy pays to repair or replace it.
Loss of use:
If a home disaster prevents you from being able to stay in your home while it is being repaired, your homeowners insurance will pay for temporary lodging for you and your family through the loss of use section.
Medical payments to others:
This section covers emergency medical expenses to a person who is injured on your property from a fall, laceration, a dog bite, or more.
Personal liability:
If someone is injured on your property and sues you for liability, this section covers medical expenses and any legal fees/settlements.
Personal injury (optional):
Though not automatically included on a homeowners insurance policy, if you elect personal injury coverage, it would cover libel, slander, or defamation lawsuits.
Causes of damage or loss that are covered
The sections of a homeowners policy we discussed above apply to several types of damage or liability scenarios, including the following.
Storm damage:
Damages caused by most types of storms, such as rain, wind, hail, hurricanes, tornadoes and blizzards are covered by home insurance. However, it has to result from a sudden cause, not gradual damage. For example, rain damage from a hole in your ceiling after a tree falls through it would be covered. Rain damage from a gradual leak you could have sealed up months ago would not be.
Theft:
If someone steals your property (either inside or outside) your insurance will pay you to replace it.
Fire damage:
If a fire damages your home or possessions, home insurance will cover the cost.
Sudden or Accidental Discharge:
Homeowners insurance covers damage from sudden water discharge, such as from a burst pipe, water heater rupture, or washing machine or dishwasher failure. However, while the policy covers the damage, it will not pay to replace the faulty water heater, washing machine, dishwasher, etc.
Overflow:
If water overflows from a clogged toilet or sink (it happens to the best of us) and causes damage, that damage will be covered by homeowners insurance.
Sewer backup or water backup (available at an additional cost):
While not automatically covered in your homeowners insurance policy, water backup coverage can be included for an additional cost. This insurance will cover you if a pipe, drain, sewer line or sump pumps backs up and causes an overflow in your home. This is different from the “overflow” coverage listed above because the backup occurs deeper within the plumbing system than the drain.
Service line coverage (available at an additional cost):
Service line coverage is an optional coverage that pays for the cost of repairing any damaged pipes or wires (such as power lines, water pipes, septic lines) coming into your property.
Equipment breakdown coverage:
This optional coverage pays for damage to your home or property caused by forces such as power surges, electrical shorts, mechanical breakdowns, motor burnout or operator error.
Causes of damage or loss that are not covered:
As you can see, homeowners insurance covers a lot! But it doesn’t cover everything. Here are some of the exclusions you can expect with a home policy:
Floods: While most weather events are covered under home insurance, for some reason, floods just aren’t. You’ll need a separate flood insurance policy to cover those types of damages. And here’s a tip: just because you don’t live in a high-risk flood zone, doesn’t mean you don’t need flood insurance -- 25% of all flood insurance claims occur outside of flood zones.
Earthquakes: Earthquakes are also not generally included on a homeowners policy. However, it is usually offered as an optional coverage you can add on to your policy.
High-risk dog breeds: We mentioned earlier that personal liability offers coverage if your dog bites or injures someone. However, there are usually exclusions for certain types of breeds that are considered “high-risk”. Depending on the insurance company, some of these breeds may include:
Wear and tear/damage from lack of maintenance: Homeowners insurance typically only covers damage and losses that are considered “sudden and accidental.” Because damage that happens over time can be prevented and maintained, it will not be covered by homeowners insurance. Some of these examples may include gradual water damage caused from slow leaks (like mold, staining, rusting, etc.), rotting or deterioration, peeling paint, loose handles or hinges, scratches and scuffs, roof shingles loosening, and more. Similarly, damage caused by your home settling is not covered.
Damage caused by pests: Unfortunately, homeowners insurance also does not cover damage by pests such as birds, rodents, or insects.
Intentional bodily injury or property damage: Earlier we mentioned that insurance covers medical payments to others and payment if you’re sued for causing an injury. It also covers property damage. But if you purposely cause bodily injury or property damage, it is not covered. Insurance will cover accidents, but if you do cause damage intentionally, that one’s on you.
Protect your home with a thorough policy from the right agency
If you don’t have a mortgage, you have some freedom. You aren’t actually required by any entity to have a home insurance policy.
However, we hope after reading this article you understand why it is in your best interest to still get a policy to protect you and your home.
But we know you still don’t want to pay an arm and a leg for a policy. Working with an independent insurance agent can help you make sure you aren’t spending too much on home insurance because they can shop several companies for you to make sure you’re always getting the best rate.
Want some more tips on how to save money on a home insurance policy? Check out this article: Ways to Save on Homeowners Insurance (Home Insurance Tips and Discounts).
