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Is homeowners insurance required?

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Homeowners insurance is a smart purchase and can protect your finances from costly repair or rebuilding expenses. But is homeowners insurance required? Depending on the situation, purchasing a home insurance policy could be mandatory. Bankrate can help you understand the ins and outs of when you need to buy a home insurance policy.

Is homeowners insurance required?

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.

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?

Although 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.

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.

Frequently asked questions

What happens if you don’t have home insurance?

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.

When do I need to get a home insurance quote?

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.

Do you need homeowners insurance at closing?

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.

Do I need to pay my home insurance to close on my house?

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.

Learn more about the average cost of home insurance.

Written by
Lauren Ward
Insurance Contributor
Lauren Ward has nearly 10 years of experience in writing for insurance domains such as Bankrate, The Simple Dollar, and She covers auto, homeowners, life insurance, and other topics in the personal finance industry.
Edited by
Insurance Editor