Paid off the Mortgage? Don’t Forget to Keep Your Homeowners' Insurance Current
Lucy Drafton-Lowery, public affairs specialist, D.C. Department of Insurance, Securities and Banking | 6/12/2013, 3 p.m.
“I thought I didn’t need homeowners’ insurance,” said the 75-year-old District homeowner. That was until a guest smoking a cigarette fell asleep and burned down the house she had lived in for 40 years.
Because she had paid off her mortgage, her lender was no longer setting aside monthly premiums to pay for homeowners’ insurance.
She was homeless, with no insurance. Terrified, she contacted people who are now trying to help her get money from government, churches and grant-making nonprofits to rebuild her house.
Nobody keeps track of how many people have paid off their mortgage and either purposely or accidentally let their insurance lapse. But you may have a relative in the same position. If they’ve paid off their mortgage, they must remember to keep up their homeowners’ insurance.
What if your home were destroyed by fire, for instance, and you discovered that there was no longer a homeowner’s policy in force? What if a burglar breaks in? If you don’t have a homeowner’s insurance policy, you will be responsible for covering the costs of repairs and stolen merchandise.
If the entire house is destroyed, it will be your responsibility to finance a new home. As tempting as it may seem, especially since some homeowners have sued their banks for allegedly colluding with insurance companies to overcharge them, it is not a good idea to let the insurance lapse without at least seriously considering the risks and shopping around for reasonable coverage. Not having homeowner’s coverage is an enormous financial risk.
Lenders require that homebuyers purchase homeowners insurance in order to get a mortgage. In fact, most mortgage companies require that homebuyers pay premiums into an escrow account each month, from which the mortgage company pays the insurance company each year.
This way the mortgage company is assured that insurance will be available if the home is damaged. But once the mortgage is paid off, there is no longer a mortgage company requiring homeowners insurance.
Some homeowners unintentionally allow their coverage to lapse because their lender no longer requires them to pay. Others may voluntarily decide to end the coverage to save money because they don’t think anything will happen to their home.
What does homeowners insurance cover? The physical structure and personal property such as clothes, furniture, jewelry, electronics and other things. And don’t forget personal liability insurance that covers policyholders against lawsuits because somebody got hurt on their property.
If the homeowner negligently causes an injury or damages another person’s property, the policy protects the homeowner. Additionally, the homeowner’s policy usually pays for a lawyer, if necessary. (The homeowner’s policy does not cover all negligent acts – for example, auto accidents are not covered.)
Be sure to contact an insurance professional to help you decide which policy to buy (there are several different forms) and how much to insure you house for.
For questions about homeowner’s insurance, you can call the D.C. Department of Insurance, Securities and Banking at 202-727-8000.
Paying the final mortgage payment is a dream come true. Be sure it doesn’t turn into a nightmare.
About the Department of Insurance, Securities and Banking
The District of Columbia's Department of Insurance, Securities and Banking regulates the city's financial-services businesses. It has two missions: to effectively and fairly regulate financial services to protect the people of the District; and to attract and retain financial-services businesses. For more information, visit us on the Web at disb.dc.gov.