Is Homeowners Insurance Required?

Do You Really Need Homeowners Insurance?

Homeowners insurance is not required by law. However, a mortgage lender will likely require a homeowners policy until the home loan is paid off. Without homeowners insurance, you bear the fiscal responsibility for repairs or structure replacement if your home incurs severe damage or a catastrophic loss covered by a policy, such as a total loss by fire or hurricane.

The importance of homeowners insurance

A homeowners insurance policy is designed to protect one of your most significant assets – your home – from the fiscal effects of common losses to the property owner. It covers your structure, external structures on your property such as a detached garage or shed, your personal property, and your personal liability.

Common perils covered in homeowners policies include fire, wind, smoke, theft, and vandalism.

Legal requirements and lender mandates

Most financial institutions will require proof of homeowners insurance for a mortgage or home loan before closing. This requirement to maintain the policy will last for the life of the loan. If you allow your homeowners insurance to lapse, your mortgage company could purchase a lender-placed policy, which is traditionally more expensive than conventional homeowners coverage.