Lots of things in life are mandatory, but some are more mandatory than others. So is homeowner’s insurance “mandatory” or mandatory?
The answer is a lot closer to the first mandatory, the one with the inverted commas -- and here are three cases when forgoing homeowners insurance might make a little sense.
1) Your mortgage is completely paid off and you own the house outright. In almost every single case, the institution from which you borrowed $$ to purchase your home will demand that you buy homeowner’s insurance.
And why wouldn’t they? Of they are going to make you pay for insurance on a home that they invested in; if the house burns down, the bank’s money goes with it.
Of course we Americans like to own our own land and make our own decisions -- so no one should have to tell us what to buy. So after you pay off your mortgage, if you want to go ahead and make the decision to go uninsured we can’t stop you..
2) You can make your money work for you in other ways. A pure financial rationalist could really squint and see homeowners as a bad investment. You could place a similar amount of money into some sort of escrow account, only to use in case of emergencies concerning your home.
Of course insurance itself is something of a bet and the amount you pay in will almost certainly be less than the amount you’ll need in the case of a traumatic event to your home; there is also a chance you might not ever need to use that money, and it will go away.
In the case of putting money away in escrow, you can of course keep that money if you don’t ever need to use it. That said, there is rarely enough money left around for the “home hedge” line item in monthly budgets.
3) You don’t own a home. In that case you should protect your stuff with renter’s insurance.
Jokes aside, there are very few good reasons not to have homeowners insurance. It protects an investment that is often the biggest expenditure during a person’s lifetime. Homeowners insurance is not always technically mandatory, but it’s super close -- and should not be obviated lightly.