With home insurance rates rising, homeowners are increasingly opting out of coverage.

In fact, 1 in 13 American homeowners is currently uninsured, according to a recent Consumer Federation of America study. While the number is relatively small, it's grown from about 5% of all homeowners to 7.4% since 2019.

Considering that the average annual cost of homeowners insurance for a $300,000 mortgage has increased 23% to $2,230 in the last year, it makes sense why some homeowners are foregoing insurance or letting their policies lapse to save money. 

But it may not be worth the risk; one disaster can ruin your finances.

"The question isn't, 'Can I afford homeowners insurance?' But rather, 'Can I afford not to have it?' says  Cathleen Tobin, a certified financial planner in New York.

Why you should always have home insurance

Not paying for homeowners insurance "is definitely a huge mistake," says Alaina Hixson, director of sales and operations at insurance provider The Churchill Agency. "While home insurance is often not cheap, the investment can save thousands and even hundreds of thousands in some cases."

That's because home insurance protects against major perils like fire, theft and water damage, generally covering your home, personal belongings, liability and even living expenses if you're forced out of your home.

Homeowners usually owe a deductible of about $1,000 or $2,500, on average, and the insurance pays for any remaining repairs, Hixson says.

Most homeowners are required to maintain insurance through their mortgage, but those who've paid off their mortgage or bought their home with cash may chose to skip it or let it lapse. Without insurance, they're left fully exposed to costly repairs if disaster strikes.

And the risk of being caught without coverage is growing, too: The number of natural disasters causing $1 billion in damage has more than quadrupled since the 1980s, according National Oceanic and Atmospheric Administration.

Experts generally recommend having enough insurance to cover the cost of rebuilding your home and replacing personal items based on current construction and material costs, rather than the market value. To keep premiums affordable, consider choosing a higher deductible—provided you have savings set aside to cover it if needed.

Don't forget flood insurance

Flood damage is major risk in certain areas, but can be overlooked since standard homeowners policies typically don't include it. About 50% of American homeowners are unaware that flood coverage is an additional policy, according to a recent survey by insurance trade group Trusted Choice.

To get flood insurance, you need to purchase it as an additional policy, either through the National Flood Insurance Program or a private insurer.

Many people don't carry flood insurance because it typically isn't required by mortgage lenders unless the home is in a high-risk flood zone. However, that doesn't mean the property can't flood, says Hixson.

"I think a lot of folks will be surprised how affordable flood insurance can be, especially when they are in less risky zones," she says.

If you already have home insurance, consider reviewing your policy to ensure your coverage limits are adequate, know which perils are included and identify any gaps, particularly for risks like floods. 

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