Home Buying & Selling Tips | Travelers Insurance (2024)

FAQs

Do you need homeowners insurance if your mortgage is paid off? ›

Once your mortgage is paid off, you have 100% equity in your home, so homeowners insurance may become even more crucial to your financial well-being.

If you have a mortgage or other home loan, keeping an insurance policy in place is likely a requirement of your loan agreement. Your lender will be notified of policy renewals and cancellations. If you fail to purchase coverage or let it lapse, your company may send your mortgage into default.

Even if you don't have a mortgage, homeowners insurance may still be worth the cost. Natural disasters, theft and other unanticipated risks can result in thousands of dollars in repairs, replacements and even lawsuits. Homeowners insurance helps offset those costs, greatly reducing what you'd pay out of pocket.

Home sellers often prefer to work with buyers who make at least a 20% down payment. A bigger down payment is a strong signal that your finances are in order, so you may have an easier time getting a mortgage. This can give you an edge over other buyers, especially when the home is in a hot market.

Once you have officially paid off your mortgage, be sure to notify your insurance provider. They will no longer go through the bank. Instead, you will handle the bill directly. This means that you will have to set up your account so the insurer draws the premiums from your account rather than the lender's.

Life insurance like term life insurance or whole life insurance can be used to pay off a mortgage. Your beneficiary will be able to spend the death benefit as they see fit, whether that's paying off a mortgage, paying down student debt, credit cards, medical expenses or any other needs.

Unfortunately, homeowners insurance premiums aren't tax deductible, unless the property creates a source of income.

When you pay your mortgage, a portion of the overall payment is set aside in your escrow account to pay for your homeowners insurance and property taxes (and mortgage insurance if your lender requires it). Your insurance and property taxes are automatically paid from the escrow account when they're due.

Avoid admitting fault or underestimating damages as this might lead to lower compensation or even denial of your claim. Honesty is crucial when dealing with an insurance adjuster, so avoid providing false information which can lead to serious consequences like claim denial or legal repercussions.

What state has the cheapest home insurance? ›

Hawaii is the cheapest state for home insurance at only $631 a year, on average. Where you live in the state will also make a difference; for example, coastal homes will often see higher rates than those inland.

Increase your deductible

A quick way to reduce your premium is to raise your homeowners insurance deductible, the amount you pay if you have to make a claim.

Following the 28/36 rule, with your $80,000 income, you want your monthly housing payments to stay below $1,866. If we assume a 30-year loan at 6.5 percent interest, with a traditional 20 percent down payment, that means you can likely afford a home of about $310,000.

Aim for a down payment that's 20% or more of the total home price—that's $40,000 for a $200,000 house. This minimum is partially based on guidelines set by government-sponsored companies like Fannie Mae and Freddie Mac.

On a $250,000 fixed-rate mortgage with an annual percentage rate (APR) of 6%, you'd pay $1,498.88 per month for a 30-year term or $2,109.64 for a 15-year one. It's important to note that these estimates only include principal and interest.

While some homebuyers prefer escrow, since it helps to avoid making large annual payments, others (especially those with stable incomes) may prefer to pay for insurance and taxes directly. For example, you may want to pay for insurance with a credit card to earn rewards.

but if your house is paid off you can legally go without insurance or self-insure. However, that means that if something happens to your house, you have to pay for any repairs, damage or replacement. That can mean bankruptcy or homelessness when you live in a state that regularly gets pasted with tropical storms.