Is Homeowners Insurance Required?
When a disaster strikes, homeowners insurance can protect your home and, in most cases, your belongings. If you have a mortgage on your home, your lender will almost certainly require you to have homeowners insurance. You are not required to have a policy if you have paid off your mortgage, but it may be a good idea to have one.
Learn what homeowners insurance is, when it may be required, and why you might want to have it even if you don't have to.
What Is Homeowners Insurance?
Homeowners insurance protects your home and belongings from damage caused by natural disasters, accidents, and other events. If a covered event occurs, your insurance policy may pay for damages and losses, but you must still pay your deductible.
A standard home insurance policy will typically cover your house as well as any other buildings or structures on your property. These policies also cover your personal property, personal liability, and medical payments if someone is injured at your home.
- Damage from every type of disaster or peril is not covered by standard home insurance policies. You may need to purchase additional coverage to protect against floods and earthquakes.
When Is Homeowners Insurance Required?
The purchase of homeowners insurance is not required by law. If you have a mortgage on your home, however, your lender may legally require you to have a policy. This way, if something were to happen to your house, your investment would be protected.
There is a coverage limit in each homeowners insurance policy. Your lender will most likely require you to carry a minimum amount—typically 80 percent of your home's replacement cost—but may require as much as 100 percent in some cases.
If you are required to have homeowners insurance as a condition of your mortgage but do not have it, your lender can purchase it for you and bill you after giving you advance notice. The policy may be more expensive than if you purchased it on your own, and it may only cover the lender, not you.
- Personal property insurance is available in two varieties: replacement cost and actual cash value. Replacement-cost policies pay for the purchase of a new (replacement) item. Actual cash value policies pay the current cash value of an item, which may not be enough to replace it after depreciation. While replacement-cost policies are often more expensive, they can save you a lot of money if you need to redecorate your home after a disaster.
When reviewing your home insurance policy, you may want to consider reducing or eliminating coverage to save money on premiums. Six types of coverage are included in most insurance policies:
- Dwelling (Coverage A)
- Other structures (Coverage B)
- Personal belongings (Coverage C)
- Temporary living expenses during relocation (Coverage D)
- Liability protection (Coverage E)
- Medical payments (Coverage F)
To customize your policy, some insurance companies allow you to increase or decrease the limits on each of those coverage areas. If you have fewer outbuildings (Coverage B), for example, you may be able to reduce the amount of coverage in this area to potentially lower your premium. You don't want to go below your lender's minimum coverage requirements, though.
Why Would Someone Choose To Get Homeowners Insurance?
Many people consider their home to be their most valuable asset, and home insurance helps them protect that investment. As a result, it may make sense to have a policy even if you don't think you'll be able to replace your home and possessions if disaster strikes.
Another reason to have a homeowners policy is that it most likely includes liability coverage in the event that someone is injured on your property. It can also pay for lost wages if the injured person is unable to work for an extended period of time. You'd have to pay for those damages out of pocket if you didn't have insurance.
Frequently Asked Questions (FAQs)
Why is homeowners insurance required?
Your mortgage company will require homeowners insurance to ensure that it receives the money owed to it if something happens to your home. It is a method for the company to safeguard its financial interest in your home.
What information is required for a homeowners insurance quote?
You may need the following information to get a quote for a homeowners insurance policy:
- Your personal information (such as your name, Social Security number, and birthdate)
- The address of the home
- Details about your home's current condition
- Details about the renovations you've completed
- Particulars about your residence (such as the age, the style, and the type of exterior finish)
- A list of the house's occupants
- A list of the home security devices you own
What is the minimum homeowners insurance policy required by lenders?
The minimum amount of coverage required varies by bank. Some banks require that your policy cover 100 percent of the home's estimated insurable value, while others allow for less. Check with your lender to ensure that your policy satisfies the requirements.