Is insurance necessary once my mortgage is paid off?

Find out how to get a contents insurance quote here

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If you no longer have a mortgage then you'll no longer be obliged to take out home insurance by a mortgage lender. This doesn't mean, however, that it's a good idea to cancel your existing policy. Both buildings and contents insurance continue to be worthwhile investments as these policies will provide you with support should you suffer a loss. 

According to the Association of British Insurers the average cost of a major flood claim is £30,000, for a household fire it is £10,200 and for theft it is £1,500. Most of us don't have access to this kind of finance if we're hit by an unforeseen event. The annual cost of home insurance premium pales into insignificance when compared to the cost of a large claim. 

And it's not just about the costs of effecting repairs and replacing your belongings following a claim. It's also about all the extras that come with an insurance policy and that can make navigating your way through difficult circumstances that bit easier. This could be cover for alternative accommodation whilst your home is uninhabitable following a loss, cover for the cost of removing debris from your home before repairs can take place or even simple help with finding a good contractor to fix things. 

The key thing is to make sure that you get the right insurance policy, one that is suitable for your circumstances and will pay out when you need it to. So what should you bear in mind? 

Insure for the Right Amount

It is essential that you choose the right level of insurance. For buildings insurance this should be the rebuilding cost of your home and not the market value. The Royal Institute of Chartered Surveyors has an online calculator that can help you with this.

When working out the amount to insure for contents, go round each room in your home and work out how much it would cost you to replace it all at today's prices. 

It is important not to underinsure as any claim you make will be reduced to reflect this. It is equally important, however, not to over insure as you'll be paying a premium for cover that you cannot claim for. 

Shop Around 

To ensure that you are paying a competitive rate for your home insurance it is a good idea to regularly shop around. Insurers frequently change their rates and so, whilst your insurer might have been competitive last year they may not be so competitive this year. Don't expect to be rewarded for loyalty either. To find out how much you could be paying get a contents insurance quote here and compare it against your current policy. 

Comply with the policy 

Finally, make sure that you are familiar with the terms and conditions of the policy and any notification requirements. You may need to take action if your home is unoccupied for more than 30 days, for example, or ensure that all windows have a key-operated lock. Whilst it is a good idea to continue to arrange home insurance once your mortgage has been paid off, it is pointless doing so if you then accidentally invalidate your cover.