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Millionaire Money Habits

July 16th, 2011 at 12:23 am

The Importance of Having Homeowners Insurance

You may not have medical insurance.  If you’re young, healthy, and willing to roll the dice (or if you just don’t have the money), you might go for a while without needing it.  For the same reasons, you might avoid purchasing life insurance.  And if you don’t mind breaking the law in most states (New Hampshire excluded) you could even skip auto insurance (although all it takes is a broken tail light to get your license revoked if you it turns out you don’t carry state-mandated car insurance).  However, when it comes to buying a home, you might have to spring for homeowners insurance before you even sign the paperwork, so that the bank can guarantee payment even if something terrible should happen to your home (which they hold the title on).  But there are a few more important reasons to get this insurance than just to get your mortgage loan.

When you set out to gather home insurance quotes, you may be thinking about one thing only: the cost.  But you should be focused on what you’re getting for the price of insurance.   The coverage you choose could end up saving your home.  And if you don’t have a lot of money to spend your insurance policy becomes even more important.  While anyone that owes money to the bank will probably have to get a comprehensive policy that includes both property and liability, you may also have to tack on coverage particular to your area, such as earthquake, flood, or fire, for example.

It’s a good idea to consider these policies even if you hold the title on your home simply because you probably don’t have the money to pay for any type of catastrophe that could occur on your property.  For example, suppose your child has a friend over and he falls down the stairs.  His parents might have him covered for medical insurance, but then again they might not.  If not, you are liable for the expense of medical care because the accident transpired in your home.  What if an electrical fire starts in your kitchen or a tornado rips off the roof?  When you begin to add up the possible cost of such disasters, suddenly the amount you’re paying for insurance doesn’t seem quite so untenable.

And beyond the financial benefits of having insurance for your home you’ll find that there are also some psychological bonuses.  The term “peace of mind” may not mean much to you, but if you have a feeling of dread every time you start to ponder the weighty responsibility of owning and maintaining a home (that you still owe hundreds of thousands of dollar on), you begin to understand what a load off your mind it would be to not have to worry about losing everything in the event of an unforeseeable accident or act of god.

So if you’ve been thinking that there are more fun ways you could be spending the money that you’ve got earmarked for your homeowners insurance, and that it’s pretty unlikely that you’ll ever use the insurance, think again.  The short term benefits of such a move pale in comparison to the potential payoff of having insurance when you need it.

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