Do You Need Home Insurance?
Home insurance is required by most mortgage lenders. But even if your home is paid off, does it make financial sense to drop coverage?

Rachael Green
Forking out thousands of dollars each year for home insurance can be annoying. That's especially true if you’ve been claim-free for years, but are still watching your home insurance costs keep surging year after year. So it's not surprising that more and more homeowners are, "Do you need home insurance, anyway?"
The short answer is yes, if you're still paying a mortgage. But even if you don't need home insurance to keep your mortgage lender happy, it's still usually a good idea to keep it anyway. Here's what you need to know about the legal requirements regarding home insurance and what your finances would need to look like for you to consider cancelling it.
Is home insurance required?
There is no state with laws mandating homeowners buy home insurance. However, if you’re still paying a mortgage, your lender most likely requires you to maintain coverage for the life of the loan. Some may even require you to buy additional coverage, like flood insurance, depending on the unique risks in your area. This is your lender’s way of protecting their investment against the risk of a total loss.

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If you live in a condo or co-op, your board might also require you to keep paying for home insurance even if your mortgage is paid off. Keeping each individual home insured helps protect the entire complex in the event of a disaster.
With that said, if your home is paid off and you’re not living in a shared complex of any kind, you aren’t legally required to keep paying for home insurance. But if you’re considering dropping it to save a few thousand per year in premiums, it’s important to consider the decision carefully.
Can you afford to cancel your home insurance?
If you’ve paid off your mortgage or you’re a few years away from doing so, you might be wondering whether it’s worth canceling home insurance altogether and just paying for damages yourself.
For the majority of homeowners, the math just doesn’t add up. But if you’re curious about what it would take, here are some numbers to help you figure out whether you’re in a financial position to stop paying for home insurance.
As a rough starting point, you should have 200% of your home’s current value set aside in savings if you want to self-insure your home. This is about how much home insurance would pay out in a total loss, according to the Insurance Information Institute.
It’s important to note that this lump sump of cash should be separate from any retirement savings, emergency fund or other money. Otherwise, a total loss could end up derailing your other financial goals. You should also consider how easy it would be for you to save that sum up again if disaster strikes and you’re forced to spend it on rebuilding or relocating.
In the end, even if you could set that much money aside, the amount you’d save by dropping home insurance might not be worth it. According to Bankrate, the national average cost of home insurance is $2,341 per year for $300,000 in dwelling coverage.
At that rate, it would take well over 100 years of saved premiums to save up the $300,000 in coverage you’re getting. Even after factoring in the annual rate hikes, you're still probably looking at decades before the savings make it worthwhile – and that’s assuming you never experience any claim-worthy damage to your home over those decades.
In the meantime, you’re locking up hundreds of thousands of dollars of your money in a savings account in case of emergency rather than putting it toward something more worthwhile. If you just kept paying for home insurance, for example, you could throw that cash into an investment portfolio where it could be earning interest for you.
Even if your retirement is fully funded and you don’t need that cash to work for you, it might be better to just enjoy your generous nest egg rather than stashing it away for the sake of saving a couple thousand dollars per year. Instead of canceling it altogether, consider switching home insurance or adjusting your coverage to cut your home insurance costs without exposing yourself to too much risk.
Use The Zebra to instantly compare multiple customized quotes to see how much less you could be paying for home insurance.
Bottom line
If there’s no mortgage lender or condo board demanding you keep paying those premiums, you technically don’t need home insurance. But the amount of cash you would have to set aside to protect your home from disaster if you canceled your insurance is probably better spent elsewhere. That’s even more true when you consider how many years of saved premiums it would take to even make up the coverage limit in your policy.
Instead of self-insuring, consider other options like boosting your deductible or excluding certain perils, like opting out of earthquake insurance or other extra coverage. Moves like this can lead to substantial savings on home insurance without leaving you completely exposed to every risk your home faces.
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Seychelle is a seasoned financial professional turned personal finance writer. She’s passionate about empowering people to make smart financial decisions by combining 10 years of finance industry experience with solid research and a wealth of knowledge. Seychelle is also a Nav-certified credit and lending expert who has explored money topics such as debt consolidation, budgeting, credit, and lending in her work for publications including GOBankingRates, LendEDU, and Credible.
- Rachael GreenPersonal finance eCommerce writer
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