Are You Tempted to Drop Your Homeowners Insurance?

Smoke billows under a closed door into a bedroom.

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How much do you really own? Seriously, do you own your home? Literally? Because chances are you have a mortgage on your home, meaning you owe a bank or someone money before it is entirely something that is your asset outright. How about your car? Own that? Unless you have that pink slip, or the online comparable, you have a loan on it as well. You may even lease your vehicle, in which case you’re about as far from that actually being your car as you can get.

While we may not have full ownership of some of our higher-ticket items like homes and cars, the third party that loaned us the moola to buy them wants to be sure their collateral is protected. One great way to protect your stuff is to insure them.

Yes, insurance, your good friend, your old pal. That bill comes, and you pay your premium. And pay it again. And again. Year after year, car after car, house after house. You may shop around, now and then, to see if you can lower your favorite expense. You may check with one insurance company and check with another, or ask your friends where they have their insurance. Desperate people may even ask a neighbor, if by some chance they have any contact with those pesky folks on the other side of the fence.

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Do you feel like all you do is pay and get nothing in return?

Sometimes you may feel like all you do is pay, pay, pay and get nothing in return. Unless you have a claim, that is — then you’re thanking your lucky stars that you have the protection you’ve been paying for.

But even so, that desire to not have to pay for an insurance policy, that feeling of being forced to spend money, it gnaws at you. Who likes to be forced to do anything, let alone spend money, let alone to not receive something tangible in return? But you pay, because that’s how the world works. You’re paying an amount that you can afford, literally speaking since you are, in fact, paying. But what happens if that amount jumps to the extent that you literally have to choose between having food on the table and having the insurance policy in effect?

Across the country, insurance premiums are at all-time highs. If you think you are paying more than you have before, you’re not wrong, and you’re certainly not alone. Regardless of the state you live in, from California to Washington, from New York to Florida, home and auto insurance premiums have been steadily and significantly rising. I discussed the reasons for this in an earlier column, Why Has Your Car Insurance Gone Up? (And What You Can Do About It), but for now, as the famous Stoic Marcus Aurelius wrote in his work Meditations, “Confine yourself to the present.”

While you owe money on your home, that home is part debt and part asset. Most folks have more debt than asset since the average homeowner sells their home in about 13 years. This gives little time to build significant equity or asset value, and the lion’s share will remain money owed to the bank that loaned money to make the purchase to begin with. But let’s say you are one of the minority who bought your home many moons ago, maybe as far back as when Halley’s Comet made its pass by us (1986 by the way), and you still own it. You haven’t refinanced too often, and you’re coming down to the time when that mortgage payment will stop. What then? What do you do when the tides turn and your combination of asset and liability becomes 100% asset and 0% liability?

Why you should renew your policy

Sadly, one of the things I hear people discussing is that they want to stop renewing their homeowners insurance policies. “The lender made me keep it, and now they can’t!” captures the gist of it. “I had to do it, was forced to do it and now they can’t make me, so I’ll show them and the world, and I won’t renew my homeowners insurance policy ever again!” While I understand the sentiment, loud and clear, what I try to explain is the following.

For typically 30 years, you have been paying that mortgage. If we assume a home purchase price of about $500,000, then you’ve likely paid about $820,500 in interest alone! And yes, you also paid that initial $500,000. So well over $1.3 million have come out of your hard-earned dollars for that roof and four walls. And now, at long last, finally, you own it, free and clear. You don’t owe anyone a cent. So now that it is 100% yours, why in the world would you then decide to not insure it? Spite? For whom? Because you just can? You can gamble your life savings on the roulette table and bet it all on black, but simply because you can does not make it a good idea or the right decision.

Protect what is yours. That is what insurance policies do — they protect you and what’s yours. Keep that homeowners insurance policy. If it has become expensive, talk to your licensed agent or broker professional and ask them to provide you with all of the options to lower the premium. Go with a high deductible — I mean, a really, really high one. Why not if the alternative is not to have coverage at all?

Don’t cut off your nose to spite your face by stopping the crucial protection on what is likely to be your largest personal asset simply because you can. Find a way to keep it, call around, shop around, go online, knock on that stranger’s door on the other side of the fence and ask where they have their home insured. Do what it takes — do not let your largest chunk of moola go unprotected.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Karl Susman is a veteran insurance agency principal, nationally engaged insurance expert witness and broadcast host who translates insurance from jargon to judgment. For more than three decades, he's helped consumers, courts and policymakers navigate coverage, claims and compliance. As Principal of Susman Insurance Agency, Karl works directly with households and businesses to compare options and make clear, defensible coverage decisions.