Paying off your mortgage is a milestone that can take decades to reach. Once you’re free from the burden of monthly mortgage payments, you will still have to cover some home-related expenses.
Your mortgage lender requires you to have homeowners insurance. Even though you don’t have to keep your coverage once you’ve paid off your mortgage, it’s a good idea to maintain a homeowners insurance policy. It will protect you if your house gets damaged or destroyed by a covered peril, if you’re a victim of theft or vandalism, or if someone gets injured on your property.
Without homeowners insurance coverage, you will have to foot the bill for those types of losses yourself. If your house gets destroyed by a fire or a storm, all the equity that you worked so hard to build will be gone.
Notify Your Insurance Company That You’ve Paid Off Your Mortgage
Homeowners typically pay their lender one monthly fee that includes separate amounts for their mortgage, homeowners insurance, and property taxes. The lender puts money for insurance and taxes into an escrow account and pays the appropriate party at regular intervals.
After you pay off your mortgage, you’ll be responsible for taking care of your insurance and tax bills yourself. Get in touch with your homeowners insurance company and let them know that you’ve finished paying off your home loan so you can make other payment arrangements. You may want to have bills sent to you each month so you can pay them by check, or you may prefer to set up autopay.
Make sure that your homeowners insurance company removes your lender’s name from your policy. When you had a mortgage, the lender was entitled to payment if you filed a claim. Now that the mortgage is paid off, your lender won’t be entitled to any funds if you receive an insurance payout, but the insurer will only remove the lender’s name if you specifically request that.
Review Your Coverage
You should periodically go over your homeowners insurance policy to make sure that it still suits your needs and budget. Compare the amount of dwelling coverage you have to the approximate amount it would cost to rebuild your house, given current costs for materials and labor in your area. Review your personal property coverage limit and figure out if it’s in line with the value of all your current belongings. Ask yourself if your liability limits are high enough to protect you from financial ruin if someone gets severely injured on your property and sues you. Your insurance agent can give you advice on those matters.
It’s also a good idea to regularly shop around and compare rates from different insurance companies. Even if the company you’re with now was the cheapest in the past, that may no longer be the case. You may be able to save money by bundling two or more types of insurance through a single carrier, raising your deductible or getting discounts.