California Home Insurance: Pros & Cons
Homeowners insurance is a necessity for most of us and while it is a must have, its never fun writing out that monthly premium check. As long as you have a mortgage on your California home, your lender will require that you carry homeowners coverage in order to protect their investment. Once you have paid off your mortgage it’s possible to drop your homeowners coverage but this can be a huge financial mistake.
Most homeowners follow their lenders requirement and protect their home with insurance. According to data from the Insurance Information Institute (III), about 98 percent of homeowners with a mortgage are carrying coverage. Dumping your coverage will not only put you in hot water with your lender but if a fire, storm or lawsuit crops up you will be on the hook for all costs if you are not protected by insurance.
Statistics from the III show that only 3 percent of homeowners across the country are going without insurance and these people tend to be wealthy enough to self insure their properties or are homeowners who can no longer afford their premiums and decide to take the risk and go without insurance.
Luckily, California homeowners enjoy pretty low rates for homeowners insurance. ValuePenguin found that the median price for a homeowners policy comes in at $974, which is 10 percent lower than the national average.
While Golden State residents are pretty lucky when it comes to the cost of homeowners insurance, you may still be considering dropping your coverage if you have paid off your mortgage. Despite the fact that saving money is always a good thing, dumping your homeowners insurance is rarely a good idea. If your home is damaged or destroyed you will be on the hook for the cost of repairs or rebuilding.
Unless you can easily cover large repair bills or the cost to rebuild your home and replace your possessions, you should not be without an insurance policy. We thought it might be fun to look at the pros and cons of living without homeowners insurance.
The Pros Are Limited
Basically, saving money is the only advantage to dropping your coverage.
Saving a Bit of Money: Saving money is really the only advantage to dropping your coverage and in California, that savings will not be that much. If you are paying the median cost for a policy ($974) your savings will only amount to $81 a month. Is it really worth the risk of losing your home or retirement savings to shave $81 off of your monthly budget?
While nobody ever expects their home to burn down or be destroyed by a storm, it does happen and if you have dropped your insurance coverage you will be responsible for all of the costs of rebuilding or repairing your home. Storms and fire are not the only risks you run, if a guest is injured in your home you may end up responsible for their medical bills and if they decide to sue you will need to cover your own legal costs and any judgments should you lose.
These kinds of costs can be financially devastating to most people which is why dumping your homeowners coverage is almost never a good idea.
Going Insurance Free is a Bad Idea
There are a number of good reasons to keep your insurance policy in place.
Rebuilding and Repair Costs:If your home is severely damaged or destroyed all of the costs related to putting it back together will be yours if you don’t have an insurance policy in place. These can be major expenses that can quickly drain your retirement savings or force you to sell other assets to cover repair and rebuilding costs.
These types of risks don’t go away just because you don’t live on the coast. Residents of Sacramento, Redding, and even Modesto are still at risk of fires, vandalism and weather damage.
According to Zillow, the median home price in California is a very expensive $547,900. This figure can be much higher depending on where your house is located. If you cannot easily afford to cover $547,000 (or much much more) to rebuild your home than you should definitely keep your insurance coverage.
A standard homeowners policy will also protect any outbuildings on your property. This includes sheds, barns, detached garages and any other structures. There can be limits to this type of coverage so check with your insurance agent about policy limits.
Liability Can Be a Problem
A homeowners policy not only protects the structure of your home, it will also cover your liability risks up to your policy limits. This coverage kicks in if someone is injured on your property. It will help cover medical bills as well as legal fees if the injured person decides to sue.
Liability risks can end up being more expensive than rebuilding your home. A serious injury can come with serious medical bills and when you throw in a lawsuit the costs can quickly spiral out of control. If you end up on the wrong end of a lawsuit you could lose your house as well as all of your other assets.
Living Expenses Are Covered
The additional living expenses portion of your policy will help with the day-to-day expenses in the event your home is so damaged that it is unlivable. This coverage can be a lifesaver if your home is completely destroyed as these costs can quickly add up. In areas where damage is widespread (major wildfire or storm) it can end up taking a couple of years of rebuild as contractors are in short supply. Can you easily handle these types of expenses for two years? If the answer is no you should be carrying homeowners coverage.
Paying to Replace Your Possessions
Over the course of your lifetime you have probably acquired quite a few possessions. If everything is damaged or destroyed in a fire or other covered peril, your insurance policy will kick in to help pay to replace those possessions, up to your coverage limits.
If you have dropped your coverage, the cost to replace all of your prized possessions will fall to you and that number can skyrocket pretty quickly. Have a quick look around your house and make a few quick calculations on what it would cost to replace everything you own. If that number would strain you financially, you should absolutely be carrying a homeowners policy.
Crime rates vary across the state of California but according to Neighborhood Scout you have a 1 in 40 chance of being the victim of a property crime. This breaks down to roughly 176,000 burglaries a year. If you are unlucky enough to be the victim of a burglary, you could end up being on the hook for replacing all of the stolen items.
It should be noted that homeowners insurance does come with coverage caps for high value items such as jewelry, artwork, collectibles, firearms, and wine collections. The coverage cap can vary by insurer but $1,500 is a pretty common limit. If you have high value items that exceed this amount you may need a rider to fully protect your property.
Final Homeowner Insurance Tips
Here are a few tips when it comes to homeowners insurance:
Flood and Earthquake Damage is Not Covered: One of the most common mistakes homeowners make is assuming that a homeowners policy covers all perils. This is not true and one of the biggest exclusions is flood and earthquake damage. If your home is located in a high-risk flood area you may need to carry a separate flood insurance policy.
Boost Your Deductible: Raising your deductible is a great way to lower your insurance costs. If you can double your deductible you should see a 10-20 percent discount hit your premium. Always choose a deductible that you can easily afford in the event you have to make a claim.
Discounts Help: Insurers offer dozens of homeowners insurance discounts and this can be a good way to lower your insurance costs. Ask your agent to do a discount review to make sure you are getting every available discount that you are qualified to receive.
Shop Your Policy Around: This is probably the best way to lower you premium. Insurers rate risk differently which can result in dramatically different quotes. Experts recommend shopping your coverage at least once a year and always be sure to compare apples to apples when it comes to coverage levels and deductibles. Compare up to 12 competitive quotes for your California homeowners insurance today!