Is Homeowners Insurance Required?

It may not be, but it’s still a good idea

A father and daughter enjoy their new home
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Noel Hendrickson / Getty Images

Homeowners insurance can protect your house and in most cases, your belongings, when a disaster strikes. If you have a mortgage on your home, your lender likely requires you to have a homeowners insurance policy. If you’ve paid off your mortgage, you aren’t required to have a policy in place, but it may still be a good idea to have one.

Learn what homeowners insurance is, when it might be required, and why you might choose to have this type of insurance even if you don’t have to.

Key Takeaways

  • Homeowners insurance provides financial protection against the aftermath of disasters, perils, and other unexpected scenarios.
  • Most mortgage lenders require you to have an active homeowners policy.
  • Even if home insurance isn’t required, it can help you fund repairs to your home and replace your belongings if something unexpected occurs.

What Is Homeowners Insurance?

Homeowners insurance covers your home and belongings against damage from certain disasters, accidents, and other scenarios. If a covered event occurs, your insurance policy may pay for damages and losses, although you’re still responsible for your deductible.

A standard home insurance policy usually covers your home, along with other buildings or structures on your property. Additionally, these policies cover your personal property, personal liability, and medical payments if someone gets hurt at your home.

Standard home insurance policies don’t include damage from every type of disaster or peril. For protection against floods and earthquakes, you may need to purchase additional coverage.

When Is Homeowners Insurance Required?

Homeowners insurance isn’t required by law. However, if you have a mortgage on your home, your lender can legally require you to have a policy. This way, if something happens to your house, its investment is protected.

Each homeowners insurance policy has a coverage limit. Your lender likely requires you to carry a minimum amount—typically 80% of your dwelling’s replacement cost—but sometimes may require as much as 100%.

If you must have homeowners insurance as a condition of your mortgage but don’t, your lender can purchase a policy for you and send you the bill after giving advance notice. The policy may be more expensive than if you bought it yourself and may only cover the lender, not you.

Personal property coverage comes in two different forms: replacement cost and actual cash value. Replacement-cost policies provide the money to buy a new (replacement) item. Actual cash value policies offer the money for the current cash value of an item, which after depreciation, may not be enough to replace it. While replacement-cost policies often cost more, they can help save a lot of money if you need to refurnish your home after a disaster.

As you review your home insurance policy, you may consider reducing or removing coverage to save money on your premiums. Standard insurance policies provide six types of coverage: 

  • 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)

Some insurance companies allow you to raise or lower limits on each of those coverage areas to customize your policy. For example, if you have fewer outbuildings (Coverage B), you may be able to reduce the amount of coverage in this area to potentially lower your premium. However, you don’t want to go below your lender’s minimum coverage requirements.

Why Would Someone Choose To Get Homeowners Insurance?

For many people, their home is their most valuable asset; home insurance helps them protect their investment. Therefore, it may make sense to have a policy even when you don’t need to if you feel like you can’t afford to replace your home and possessions if disaster strikes.

Another reason to have a homeowners policy is that it likely provides liability protection if someone gets injured on your property. It can also pay for loss damages if the person who gets hurt can’t work for a while. Without insurance, you’d likely need to pay for those damages out of pocket.

Frequently Asked Questions (FAQs)

Why is homeowners insurance required?

Your mortgage company requires homeowners insurance to ensure that it still gets the money you owe if something happens to your home. It’s a way for the company to protect its financial interest in your home.

What information is required for a quote for homeowners insurance?

To receive a quote for a homeowners insurance policy, you may need the following information:

  • Your identifying information (such as your name, Social Security number, and birthdate)
  • The address of the home
  • Information about the current condition of your home
  • Information about renovations you’ve done
  • Details about your home (such as the age, the style, and the type of exterior finish)
  • A list of occupants of the home
  • A list of home safety devices you have

What is the minimum homeowners insurance policy required by lenders?

The minimum amount of required coverage varies from bank to bank. Some banks ask for your policy to insure 100% of the home’s estimated insurable value; others allow for less. Check with your lender to ensure your policy meets the requirements.