Should You Modify Your Home Insurance After Paying Off Your Mortgage?

It is smart to update your home insurance policy yearly to ensure you have the right coverage types for your risks, but it is also smart to modify your plan after paying off your mortgage. When you make your final mortgage payment, you will no longer be required to keep home insurance on your house, but you should keep it anyway. Here are several things to understand about modifying your policy after paying off your home.

Why You Should Keep Your Coverage

When you have a home loan, your lender dictates things you must do, and one requirement is having home insurance. Therefore, when you pay off your loan, your lender cannot require this any longer. When you pay off the loan, your lender will send you several documents that prove you own your home, and you should hold on to these documents. You might even need to send them to your home insurance agent for proof that you paid off your loan.

You should not cancel your home insurance policy when paying off your loan, though. If you cancel it, you will have no coverage for your house. Therefore, you should keep your coverage, but you might want to make a few changes to the policy.

The Changes You Can Make

The first thing you can do is to change the deductible amount. If you pay off your mortgage, you will have more money in your pocket each month. If you ever need to file a claim on your home, you will probably have enough money to pay a higher deductible. Therefore, you might want to increase your deductible to $5,000 or $10,000. By doing this, you will see a huge decrease in your home insurance premiums.

Next, you might need to change the way you pay your premiums. If your home loan included an escrow account, you would have paid your mortgage company extra money each month to cover your home insurance. If you no longer have home loan payments, you will need to pay the premiums yourself. Therefore, you might need to update this part of your plan.

Finally, you might want to adjust the value of your home. When you have a home loan, the lender might require more coverage than necessary. If you have more coverage than you need, you will pay higher rates than necessary.

As you prepare to pay off your home, you might also want to consider contacting your home insurance company to update your plan. For more information about home insurance, contact a local provider.