NJ Pros & Cons: Home Insurance Review

30 Jan
View of a nice coastal neighborhood of victorian style homes near the New Jersey shore.

Once you have paid off your mortgage, it’s possible to drop your homeowners insurance. While this may seem like a good idea (saving money is always good) it can end up being a huge mistake if your home is hit by a storm or fire. Without insurance you will be on the hook for the cost of rebuilding or repairing your home and if someone is injured on your property you may end up covering medical and legal bills as well. 

The reason that lenders require homeowners insurance with a mortgage to carry insurance is to fully protect their investment. They understand that fires and severe weather events happen and if your home is severely damaged or destroyed, it will cost a fortune to repair or rebuild it, unless you are protected by insurance. Luckily, most homeowners agree, according to data from the Insurance Information Institute (III), roughly 98 percent of homeowners with a mortgage carry homeowners coverage. 

Once you have sent in that final payment and own your house free and clear, it is up to you if you want to carry insurance and while dumping your coverage will certainly save some money, it can be a huge financial mistake. Statistics from the III found that only 3 percent of homeowners across the country are going without homeowners insurance. These people tend to be wealthy enough to self-insure or simply cannot afford their premiums anymore. 

Surprisingly, homeowners insurance is very affordable in the Garden State. According to ValuePenguin, the average premium for homeowners insurance in New Jersey is $1,092, which is only 1 percent above the national average. Premiums can be much higher if you live on the coast in cities like Atlantic City, Ocean City or Wildwood

If you have paid off your mortgage and are thinking about dumping your homeowners insurance we highly recommend that you take a few minutes to consider this decision and the risks it presents. Below, we look at the pros (there is only one) and the cons (there are many) to dropping your homeowners coverage. 

The Only Pro is Money

The only really pro is saving a bit of money but this puts you at a lot of risk.

Saving Money: Getting rid of your monthly insurance payment is certainly a pro but it can dramatically increase your risk. 

If you want to drop your coverage it is important to remember that you will be on the hook for the cost of repairs or rebuilding if your home is damaged by a storm or other peril. In addition to these risks, you will also be responsible for the medical and legal bills if someone is injured in your home. Unless you can easily cover these types of costs, you should have a homeowners policy in place. 

Superstorm Sandy reminded everyone in New Jersey just how destructive Mother Nature can be and if you are living without an insurance policy, all of the costs to repair or rebuild your home as well as replace all of your possessions will be your responsibility. 

Reasons to Keep Your Coverage Are Many

There are a plenty of reasons it makes sense to keep homeowners insurance in place. 

Rebuilding and Repair Costs:The biggest reason you should be protected by a homeowners policy is the cost to repair or rebuild after a storm or other disaster strikes. If your home is damaged or destroyed and you are not carrying a policy, you will have to cover the cost of fixing up your home or even rebuilding your entire home. Unless you can easily afford these types of costs, you should be carrying a homeowners policy. 

While coastal residents should never be without homeowners insurance, even if you live inland, in a city like Edison, Princeton, or Trenton, severe weather can still hit and house fires can happen anywhere. Lighting strikes can cause severe damage and lead to a fire, all of these costs will end up being yours if you drop your policy. 

According to Zillow, the median home price in New Jersey is $323,600 but prices can be much higher on the coast and in some of the major cities. If you are living without insurance you will be paying the $323,000 (or much more) to rebuild your home if disaster hits. In addition, you will be covering the cost of replacing your possessions. These kinds of expenses can quickly drain a savings account. 

Homeowners insurance not only covers your home but any detached structures on your property. If you have a shed, barn, detached garage or other outbuildings these will all be covered by your homeowners policy. 

Liability Risks Are Huge:Liability is another major risk that you have to consider when living without insurance. The liability portion of a policy will help cover medical and legal costs if a person is injured on your property. If you don’t have coverage, these costs will fall to you. 

Medical bills can quickly spiral out of control, especially if the injury is serious. In addition to medical bills you could end up in the middle of a lawsuit if the injured person decides to sue. Legal bills and any judgments can end up in the million dollar range if the injury is serious. These types of costs can end up costing you your home, retirement savings and any other assets that you have acquired over the years. 

If you are absolutely determined to drop your homeowners coverage, we highly recommend that you carry an umbrella policy to help cover your liability risks. 

Living Expenses Are Covered: A standard homeowners policy comes with a cost of living portion that helps pay for your day-to-day living expenses in the event your home is unlivable after a covered peril. This coverage will reimburse you for hotel bills, restaurant meals as well as things like laundry costs. This coverage can be a financial lifesaver if you are out of your home for an extended period of time. 

Your Possessions: Over a lifetime, you have acquired a fair amount of possessions and replacing them would be an expensive endeavor. Take a few minutes to wander around your house and do a quick calculation to replace everything you own. If you cannot easily afford that number, you should be carrying a homeowners policy. 

Burglary, fire, and weather damage can put all of your possessions at risk and if you are living insurance free you will be on the hook for the bills to replace everything. Crime rates vary across the state but according to Neighborhood Scout, New Jersey residents have a 1 in 64 chance of being the victim of a property crime. This shakes out to about 23,891 burglaries a year. 

When it comes to homeowners insurance you should be aware that high-value items do come with a coverage cap. The cap will vary by insurance company but $1,500 is a fairly common number. This cap applies to items such as artwork, collectibles, jewelry and even wine and cigar collections. If you have high-value items that exceed this amount you may want to consider a rider to fully protect your property. 

A Few Homeowner Insurance Tips

Here are a few tips about homeowners coverage and tricks to lower your premium:

Flood and Earthquake Damage are Never Covered: Homeowner policies do not cover damage that is caused by an earthquake or flood. If you are at risk for an earthquake or flood you will need to carry a separate policy to cover those risks. While flood insurance can be expensive, if you live on the coast you should absolutely carry a flood policy. 

Raise Your Deductible: If you are looking for a great way to lower your premium, raising your deductible is a good strategy. If you can afford to double your deductible this should result in a discount of 10-20 percent on your premium. Always make sure you choose a deductible that you can easily afford in the event you have make a claim on your policy and cover the deductible. 

Discounts Matter: Insurance companies offer a wide variety of discounts and making sure that you are getting all of the discounts that you are qualified to receive is a great way to lower your premium. Ask your agent to do a full discount review on your policy to make sure all available discounts are applied to your policy. 

Shop Your Policy Around: This is probably the best way to lower your insurance costs. Insurance companies rate risk differently which can lead to major differences in policy quotes. Shop your coverage on a yearly basis and make sure you are comparing apples to apples when it comes to coverage levels and deductibles. 

HomeInsuranceKing.com is happy to help you compare up to 12 rates and coverage options. If we can help you save money, while also improving your coverage, please click here to get online New Jersey home insurance quotes now.

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