When do i need homeowners insurance

Asking if homeowners insurance is required is sort of like asking whether applying sunscreen is required.

Turns out, homeowners insurance isn’t required by law. But just like buying sunscreen, it may help you avoid a helluva lot of trouble in the long term.

Whether you’re thinking of buying a house, or you’re already in the process, homeowners insurance is definitely a term you’ll come across. That home you’re purchasing will be one of the most valuable assets you’ll ever own (unless you’re Mr. Monopoly). Homeowners insurance will protect that asset, and in the long term, it will protect you too (just like sunscreen!).

Is homeowners insurance required by law?

Unlike car insurance, which is required by law, homeowners insurance is not. However (and this is a pretty big however), most mortgage lenders will require some basic form of homeowners insurance.

Think of it this way: your mortgage lender is kind of a joint homeowner with you. It’s in their best interest to keep your home in tip-top shape – kind of like a very responsible business partner!

Your mortgage lender will make sure that if the worst happens to your joint asset, you’ll have the funds to take care of it. Because if you don’t, you’d have little to no mortgage value, and you’d both lose your asset.

Do I need homeowners insurance?

Even if you are Mr. Monopoly and you purchased your home outright (with cash) you’ll still want to invest in some homeowners insurance. Why, you ask?

1. Home insurance protects your house

You’ve gone through the trouble to finance your new home, so you might not have that same chunk of change readily available if the worst happens and you need to repair or rebuild.

So if a huge unexpected disaster takes place, like a fire or windstorm, you’ll save hundreds of thousands (or millions depending on your house size) on out-of-pocket expenses. 

2. Home insurance protects your belongings

Homeowners insurance protects more than just your actual house. What about all of that valuable stuff you’ve spent so many years collecting?

Your stuff, aka your personal property, is also covered by homeowners insurance. It protects your precious valuables in case of theft, damage, or loss. It would be a major bummer if something valuable got stolen, but having the money to replace it would definitely soften the blow.

Better than that: Homeowners insurance protects your valuables even if they’re outside your home, like your laptop, bike, or phone.

3. Home insurance protects you from lawsuits

There’s always a chance a visitor could get hurt on your property, and if that injury leads to medical fees (aka bodily injury), you could be sued for damages. This type of coverage is called personal liability, and it’s really important to have.

4. Home insurance helps you sleep at night

Let’s be honest: when thinking about worst-case scenarios, our imagination can run wild, from natural disasters to an Oceans 11-style robbery. Homeowners insurance won’t necessarily stop bad things from happening, but it will put those monsters to bed by giving you the necessary protection and peace of mind that if and when they do, you’ll be able to handle it. You can learn more about the specifics of homeowners insurance coverage here. 

In the end, homeowners insurance isn’t something you’ll feel forced to have – it will be something you’ll want to have. Homeowners insurance is the best financial defense against bad things that may happen in life, giving you much-needed peace of mind.

Which states currently offer homeowners insurance?

Arizona, California, Colorado, Connecticut, Georgia, Illinois, Indiana, Iowa, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Virginia, Washington, D.C. (not a state…yet), and Wisconsin. 

If you own your own home, you probably know that homeowners insurance is an important tool to protect what is likely your biggest investment. It can protect your finances if your home is damaged by a covered peril such as natural disasters such as fire or hailstorms. If your home is damaged or destroyed, it may help pay to rebuild or repair it. But is homeowners insurance a requirement of ownership? That depends. Bankrate can help you sort out what is mandatory, and what is just a good idea to have on hand in the event of a catastrophe.

That depends on the circumstances. If you are wondering if homeowners insurance is required by law, the answer is no. Homeowners insurance is not required by state or federal law. This is different from auto insurance, where most states have minimum requirements for how much coverage you need before you can hit the road. It’s worth noting, however, that you may be required to carry homeowners insurance if you have a mortgage, so that your lender can protect their interest in your home.

However, even if home insurance isn’t legally required, it may still be in your best interest to purchase a policy. Homeowners insurance comes with a host of benefits, including coverage for a number of unexpected losses that occur on your property.

Do mortgage lenders require insurance?

As we already mentioned, even though it isn’t required by law, homeowners insurance is usually required for mortgage purposes. When you take out a mortgage or other type of home loan, the bank has a financial interest in your property. With a homeowners insurance policy in place, your lender is ensured a payout in the event some type of catastrophe occurs.

Because standard home insurance policies do not cover flood damage, you may also be required to add on flood coverage if your home is located in a designated flood plain. This information is usually disclosed when you buy the house, but you can also search by your address through online FEMA flood maps.

Even if you are not in a flood zone, flood insurance can be a good investment if you are near any body of water—even a small one—that could conceivably flood after a downpour. Your realtor or your neighbors may be able to tell you if flooding has ever been a problem in your local area.

Another type of insurance you may be required to purchase if you have a mortgage is earthquake coverage, if you live in an area where these are common, such as parts of the West Coast. This is often sold as a rider on your basic policy.

When you take out your home insurance policy, you may see a “loss payee clause” listed. This means that both you and the lender receive reimbursement for any damage caused when you file a claim. This helps to protect your lender’s stake in your property if damage occurs.

How much homeowners insurance do lenders require?

In most cases, a lender requires you to insure your home up to the rebuilding value. This amount is usually determined by the insurance company using a specialized tool and the specific details of our house. However, mortgage lender requirements can vary, so be sure to talk with your lender to understand what kind of coverage you need to have.

Other reasons you need homeowners insurance

On top of your lender being financially protected by a homeowners insurance policy, you get a lot of protection as well. In fact, there are four key areas of financial protection included in a standard home insurance policy.

• Dwelling coverage: This part of your policy covers the structure of your home. If it sustains any kind of damage from a covered event, such as fire, wind or vandalism, you can file a claim and be reimbursed for repairs.
• Personal property: Homeowners insurance also covers your belongings. If items are damaged in a covered loss, you’ll be covered up to a certain amount. You may need a policy rider for items with high values, like jewelry or electronics.
• Personal liability: If someone is injured on your property, you could be sued to cover their medical expenses. Your homeowners insurance offers personal liability coverage, which pays  if you’re found responsible for guest injuries. It also applies to damage to someone’s property that happens at your home.
• Additional living expenses: This covers your living expenses, like hotel and meals, \ if you have to stay somewhere else while your house is being repaired after a covered loss.

In addition to these four basic coverages, there are other options you can add to your policy to give it additional functionality. The most common type of homeowner policy, the HO-3, protects you from 16 “named perils,” which include some of the more common disasters that can happen to your home.

But there are omissions, such as flood coverage, as we noted above, and other, less common mishaps. You can often purchase additional, optional coverage called endorsements, or riders, which will protect you from less common disasters. These may include coverage for things like earthquakes, sinkholes or sewer backups. An increasingly common one covers you for the cost of recovering from identity theft. You can choose your endorsements when you purchase your policy, or add them on later if needed. Speak with a licensed insurance agent to learn more about your options and what you may need for your situation.

Frequently asked questions

• • If you have a mortgage or other home loan, keeping a policy in place is likely a requirement of your loan agreement. Your lender will be notified of policy renewals and cancellations. If you fail to purchase coverage or let it lapse, your company may buy a policy on your behalf. This is called force-placed insurance and it is generally more expensive and provides less coverage than a policy you would purchase on your own. Alternatively, the lender could send your mortgage into default since not having a policy would be a violation of your loan agreement. But that’s not all: if you don’t have home insurance and a disaster happens that damages or destroys your house, you will be responsible for paying for repairs out of pocket. A serious fire, for example, could happen to anyone, but you’d be on your own for repairs or replacing damaged property if you don’t have insurance.

  • Once you’ve had an offer accepted on a home, you probably should start getting home insurance quotes. Even if your closing is several weeks or more away, getting quotes early gives you time to compare companies and choose the carrier and coverage that is right for your needs. Your mortgage company may need a quote to finish underwriting your loan, too, so having a quote early can help the process go more smoothly.

  • Yes, if you have a mortgage or other home loan, homeowners insurance is typically required at closing. You can either bring a copy of the policy to closing or send it ahead of time. Your insurance company or agency might even send the documents directly to your mortgage lender. Your lender and insurance agent should help you navigate the process to make sure everything is received in time — otherwise, your closing could be delayed.

  • You might. If your mortgage is set up with an escrow account for your insurance and taxes, your home insurance company will likely issue a payment to your mortgage company after closing. But if your mortgage is set up so that you pay your own home insurance, you’ll probably need to pay the annual premium yourself and bring a receipt to closing.

  • There’s no single “best” company that always has the best and most cost-effective policies for everyone. There are multiple factors that go into determining your premium rate, so the company that gives your neighbor a great rate may not always be your own best option. A good idea is to ask for quotes from several companies so you can compare rates. You could start your search with Bankrate’s research into the cheapest homeowners insurance companies.

    Learn more about the average cost of home insurance.