HouseWhen you have an older car, it can sometimes make financial sense to drop your collision and comprehensive coverage. This can make sense in this situation because the cost of repairs can exceed the value of the car. This strategy usually isn't a good idea with home insurance though. The financial stakes are just too high.

You Still Need Liability Coverage

Home insurance policies don't just cover your physical house. They also give you liability protection that can cover the value of your house plus your other assets. While you may be able to afford to rebuild your house, you probably can't afford to lose your life savings if you lose a lawsuit.

Umbrella coverage may be an alternative, but most umbrella policies require you to have a minimum amount of car and home insurance before you can buy a policy.

Building Costs Go Up

Depending on how long ago you built your home, building costs may have risen exponentially. In addition to inflation, higher building codes that you'd need to follow during reconstruction can also add to the costs. Further, if your home is damaged by a major disaster that affects a large area, supply and demand may force you to pay more or wait months — as builders will be booked up.

Don't Forget Incidental Costs

If you lose your house, you may need to replace all of your belongings, pay moving costs, or live in a hotel for a few months. These are all costs that your home insurance policy usually covers.

If You Have a Mortgage, You Don't Have a Choice

If you don't have a mortgage, your lender will almost always require you to carry a certain amount of home insurance coverage. That protects them from taking a loss on the loan if your home is destroyed.

Your lender may have the right to place your loan into default if you don't have the right coverage. That means you'd need to pay off your entire mortgage immediately. Otherwise, your lender could force you into foreclosure.

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