Unless you are comfortable living life on the edge and taking big risks, you should never own a home without having adequate insurance. There are just too many things that can go wrong. Why expose yourself to a major lawsuit if someone happens to get injured on your property? Why take a chance of losing all of your possessions to theft or a fire? The prudent person will always carry homeowners insurance.
Some people believe that once their house is paid off and they no longer have a mortgage that they can get rid of the insurance on their homes as well. Technically, if you own your home free-and-clear, you are under no obligation to continue to pay homeowners insurance. When you had a mortgage, the lender required you to carry homeowners insurance to protect their interest in the property. Now that the property is all yours, the only obligation you have is to pay the property taxes and any other fees that may be required.
However, if you have been lucky enough to actually pay off your mortgage, it’s advisable to continue to keep a homeowners insurance policy in force. The risk-return ratio of having a policy as opposed to living without protection highly favors insurance. It may cost you $100 or $200 per month for insurance, but, if you suffer an uninsured loss you may be $10,000, $20,000 or more out-of-pocket. Most people can not afford such an expense.
Celebrate the fact that you have been able to pay off your mortgage. Keep your homeowners insurance policy intact. Even though you will have to pay a monthly premium, the cost of housing has dropped substantially since your house was paid off. Be happy, safe and secure in your paid off home!