Is Home Insurance Required?
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Home insurance isn’t required by law, but your mortgage lender may require it.
Even if you don't have a mortgage, there are still several reasons to buy home insurance.
Home insurance helps cover the cost of rebuilding your home and replacing stuff damaged by covered events.
Your home is likely your biggest investment — and all it takes is one disaster to cause serious financial trouble. Although home insurance isn't required by law, it can still be a smart move, even if you own your home outright.
Is homeowners insurance required by law?
No, home insurance isn’t legally required. However, it’s highly recommended. Unexpected events like fires, theft and natural disasters can happen at any time. Without insurance, you’d be left to pay for losses yourself.
Do mortgage lenders require home insurance?
Lenders typically require you to have home insurance when you take out a mortgage. So even though you’re not legally required to have home insurance, you may still have to buy it.
When you take out a mortgage, your house is used as collateral for the loan. This means that if you can’t pay your loan back, the lender can recover its money by taking possession of your house. Home insurance protects the lender’s investment by ensuring your home can be repaired or rebuilt if it's damaged as a result of events covered by the policy. If you don’t have home insurance and your home is destroyed, the lender may not be able to recover the money it lent you.
Depending on your location, your lender may require you to purchase extra coverage beyond a standard home insurance policy. For example, you may need flood insurance if you live in a special flood hazard area (SFHA). You can check FEMA’s Flood Map Service Center to see if you live in an SFHA.
If you don't get home insurance before your loan closes — or you don’t get enough coverage — your lender may buy it for you and add the cost to your mortgage payment. This is known as "force-placed insurance," and it’s usually more expensive and offers less coverage than insurance you buy on your own.
How much homeowners insurance will a lender require?
Generally, your lender will require you to have enough insurance to cover the full cost of rebuilding your home if it's destroyed. This is known as the replacement cost. So if it costs $300,000 to rebuild your home, your lender will likely require you to have at least $300,000 in dwelling coverage.
When you take out a mortgage, your minimum home insurance requirements will typically be listed in your mortgage contract. Be aware that you might need more than the minimum if you have valuables like art, fine jewelry and electronics.
Mortgage insurance vs. homeowners insurance
Mortgage insurance and homeowners insurance are both types of insurance related to homeownership, but they serve two different purposes.
Mortgage insurance protects your lender if you stop making payments and default on your mortgage. There are two types of mortgage insurance:
Private mortgage insurance (PMI), which costs between 0.3% and 1.5% of your loan amount per year.
Government mortgage insurance, such as for FHA loans, which costs around 0.55% of your loan amount each year.
Home insurance covers unexpected events like fires, theft or natural disasters. It can help you rebuild your home and other structures, replace your belongings, pay for legal and medical bills if someone is injured on your property and cover additional living expenses if you need to temporarily relocate while your home is being repaired.
Mortgage insurance is usually required if your down payment is less than 20%. Home insurance is recommended for all homeowners, regardless of how much you put down on your home.
What happens if you don’t have home insurance and your home is damaged?
Not having home insurance can be risky, as disasters can take place at any time without warning. Having home insurance means you may not have to pay as much to repair the damage on your own should one happen.
If your home is damaged and you don't have home insurance, you’ll be responsible for paying for repairs out of your own pocket. This can be a huge financial burden, especially if the damage is extensive. In that case, you may need to take out loans or drain your savings to cover repair costs.
Without home insurance, you’ll also have to pay to replace personal stuff like furniture, appliances, electronics, clothes and much more.
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