When you buy a house with a mortgage, your lender will not allow you to close on it unless you have homeowner's insurance for the property. This requirement is a standard rule across the board with all lending institutions. Once you pay off your loan, you will no longer have a lender telling you that you must have home insurance. Does this mean that you should cancel your policy? It means that you can choose to cancel it if you wish, but this is not always a smart move.
Why You Could Cancel Your Policy at This Time
If you can remember when you bought your house, you may recall all the different requirements your lender had for you. These requirements were not optional at the time. To get the loan, you would have had to do what your lender instructed. Once you pay off your mortgage, though, you will not have a lender dictating requirements and rules to you. Therefore, you can cancel your homeowner's insurance after paying off the loan. Your lender required it for protection of the money they loaned you. If you no longer owe them money, they cannot require this.
Why You Shouldn't Cancel It
While you always have the option of canceling your policy after paying off your mortgage, it is never a good idea to cancel it. If you have no homeowner's insurance on your house, what will happen if a fire destroys it? You would lose your entire home and everything in it, and you would not be able to file a claim for compensation. You stand to lose a lot without having homeowner's insurance.
What You Should Do Instead
Instead of losing all the coverage you have, there is a better solution. You could update your policy. One of the common things people do after paying off their loans is to change the deductible on their plans. If you have a $1,000 deductible, you could change it to $5,000 or more. By doing this, you will still have all the coverage you need for your home but would have lower premiums on the policy.
When you make your last payment on your mortgage, it is a perfect time to contact your homeowner's insurance agent to update your policy. If you would like to alter your homeowner's insurance or get a quote from another company, contact an insurance agent of your choice.