Living without homeowner's insurance is a risky prospect. Anything that happens to your home, or if people get hurt on your property, can cost you thousands of dollars. Especially in areas where natural disasters, such as hurricanes or earthquakes, are common, the cost of house insurance has increased dramatically. However, most mortgage companies require you to have insurance on your house -- if you don't have insurance, your mortgage company may find insurance for the house at a high premium that you are required to pay. If you can't afford insurance for your house or live in a high-risk area where you can't qualify for house insurance, there are some alternatives to consider.
Basic Hazard Policy
A basic hazard policy protects the structure of your home from certain types of damage, but it doesn't usually protect the contents of your home, such as your furniture. This policy would still satisfy most mortgage companies. Most basic hazard policies cover your home if damaged by fire, theft, vandalism or water damage from broken pipes. Some have the option to cover your home against other disasters, such as wind storms or hail damage, for an additional fee. These policies are usually cheaper than standard house insurance, but you still need money in savings to cover your personal belongings, medical liability of people who visit your house and other potential disasters, such as a hurricane or earthquake.
In some states where natural disasters are common, including the coastal states of Florida, California and Louisiana, many insurance companies no longer offer homeowner's policies, making it hard to insure your house. To help in those areas, the federal government created the Fair Access to Insurance Requirements (FAIR) plans. All the insurance carriers in the state create a pool to share the profits or losses from FAIR plans. These are often expensive, but may be the only alternative to house insurance available in areas deemed a high risk. Most provide only basic coverage, such as from fire or wind damage. Some only cover issues considered a high risk in your area, such as wildfires in California or hurricane damage in Florida. Most FAIR plans satisfy your mortgage company's insurance requirements.
A home warranty typically covers specific items inside your house, such as your appliances, ceiling fans and central vacuums. Many have the option of covering major systems, such as electrical and air conditioning systems. Most home warranties have an annual fee that is much lower than a house insurance premium, and you pay a small deductible each time you call for repair. They usually replace any covered item they can't fix, and some fix any damage that occurs after a repair. For example, if you have someone come inspect your plumbing and make repairs, then the repaired pipes begin to leak, the warranty company pays for the repairs. However, it won't pay for damage from natural disasters, fire, theft or many other repairs covered by house insurance, so these plans don't always satisfy your mortgage lender's insurance requirements and are best for people who don't owe a mortgage. The benefit of a home warranty over a house insurance plan is that it pays for things that are more likely to need repair -- in most cases, the chance of you needing an appliance repair are greater than the chance your house will be lost in a fire.
If you are facing high insurance premiums, you might be able to use your savings instead of an insurance policy if you don't have a mortgage on the home. This can be scary, because you are solely responsible for any repairs, even if your home is completely destroyed by fire or other disaster. You also are responsible for medical bills or lawsuits from people who get hurt on your property. This alternative to house insurance is best for people who have enough money in savings to rebuild their homes and replace furniture and personal belongings, not a typical scenario for young couples or even seasoned homeowners.
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