Are You Required to Have Homeowners Insurance?


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Updated: May 22, 2024

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Homeowners insurance is not mandated by law, but mortgage lenders often require it to protect their financial interest in the property. For homeowners, securing this insurance is crucial in safeguarding their investment against unexpected damages and liabilities. With homeowners insurance, individuals comply with lender requirements and ensure they have coverage for major financial risks associated with property ownership, from natural disasters to theft and accidents on their property.

Key Takeaways

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Although homeowners insurance is not legally required, mortgage lenders often require it to protect their financial interest in the property.

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Even when not required, homeowners insurance offers financial security for rebuilding or repairing after disasters.

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Before buying home insurance, assess your needs to determine the coverage that best suits your home and location.

When Home Insurance Is Required

Federal or state law does not require homeowners to have homeowners insurance. It only becomes necessary if you need to obtain a mortgage, as lenders generally require it to safeguard their financial interest in the property. Beyond this condition, the decision to maintain homeowners insurance lies with the homeowner.

Do Mortgage Lenders Require Homeowners Insurance?

Homeowners insurance is typically included in your mortgage, as lenders will require you to have a policy as a condition of the loan to protect their investment. Your home insurance is paid through an escrow account, which the lender sets up to collect and hold funds for property taxes and insurance premiums. This process ensures that the insurance payments are timely and the property remains covered, safeguarding the lender's financial interest throughout the mortgage term.

Once you pay off your mortgage, maintaining homeowners insurance becomes a choice, not a requirement. However, continuing coverage to protect against potential financial losses due to damage or liability is highly advisable.

Mortgage Insurance vs. Homeowners Insurance

Mortgage insurance and homeowners insurance are both important when you own a home, but they serve different purposes and protect different parties.

Mortgage insurance helps the lender by covering some of the losses if a homeowner fails to pay their mortgage. This insurance can be canceled once the homeowner builds sufficient equity in the home.

On the other hand, homeowners insurance is meant to protect the homeowner by covering losses related to damage to the house or property, theft and accidents on the property. Even after a mortgage is paid off, it remains beneficial for homeowners due to its broad coverage against various forms of damage and liability.

Take a look at the key differences between these types of policies:

Feature
Mortgage Insurance
Homeowners Insurance

Purpose

Protects the lender

Protects the homeowner

Required By

Lenders, when the down payment is less than 20%

Mortgage lenders, property owners

Coverage

Covers lender's losses from default

Covers property damage, theft and liability

Payment

Included in mortgage payments

Often paid via escrow with mortgage

Do Homeowners Associations Require Home Insurance?

Homeowners associations (HOAs) do not require homeowners insurance from members. While HOAs have their own policies, the insurance purchased generally covers common areas and shared structures, not individual homes. This means that while your HOA may have insurance for community properties, you are responsible for obtaining separate insurance to cover your home and belongings as a homeowner​.

Why Buy Homeowners Insurance if It’s Not Required?

Homeowners insurance is valuable even if it's not legally required, as it provides a safety net that covers various unexpected incidents that could otherwise be financially devastating. Here are some reasons why you should consider maintaining homeowners insurance:

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    It Offers Comprehensive Coverage

    Homeowners insurance protects against a wide range of perils, including fires, storms, theft and vandalism. It covers not only structural damage to your home but also the loss of personal belongings.

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    It Provides Financial Security

    The policy helps manage the enormous costs of rebuilding or repairing your home and replacing its contents after a disaster, which could otherwise be financially devastating.

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    It Includes Liability Safeguards

    This insurance covers you if someone is injured on your property, helping with potential legal fees, medical expenses and settlement costs. Thus, it protects your assets from lawsuits.

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    It Covers Living Expenses

    If your home is rendered uninhabitable due to a covered peril, the policy can provide for additional living expenses, ensuring you have somewhere to stay during repairs.

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    It’s Affordable

    The average cost of homeowners insurance is $218 per month, which is relatively affordable compared to how much you’ll have to pay in the event of a disaster.

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    It Ensures Mortgage Compliance

    Homeowners insurance is often required by mortgage lenders to protect their investment, making it crucial for maintaining loan conditions.

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    It Offers Peace of Mind

    Above all, having homeowners insurance gives you peace of mind, knowing that you are financially protected against a range of unpredictable and potentially devastating situations.

What Happens if You Don’t Have Home Insurance

Not having homeowners insurance can expose you to significant financial risk and complications, especially if unexpected damages or liabilities occur. Here are the consequences of lacking this coverage:

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    You Bear Full Repair Costs

    Without insurance, any damage to your property from fires, storms or other disasters comes directly out of pocket.

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    You Face Total Loss Risk

    In the event of a total loss, such as a home destroyed by a natural disaster, you have no financial backup for rebuilding.

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    Liability Costs Are Yours Alone

    You are solely responsible for medical and legal expenses if someone is injured on your property.

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    Mortgage Issues May Arise

    If you have a mortgage without insurance, you may violate the terms of your loan agreement, which could lead to potential complications with your lender.

How to Set Home Insurance Coverage Levels

The amount of homeowners insurance you should get depends on the potential costs of replacing your home and belongings. Here’s a quick guide to understanding how much homeowners insurance coverage you need:

  • Dwelling Coverage: Your dwelling coverage limits should reflect the total cost of rebuilding your home if it were destroyed. To select the correct limit, consider the construction costs in your area and any unique features of your home that may affect rebuilding expenses. Regularly updating this value is vital, especially after home improvements or significant changes in local building costs.
  • Personal Property: Personal property coverage covers the contents of your home, such as furniture, electronics and clothing. Choose a coverage limit based on the total value of your possessions, and opt for a policy that reimburses the replacement cost rather than the actual cash value, which deducts depreciation.
  • Liability Insurance: Liability coverage protects you if someone is injured on your property or if you cause damage to someone else’s property. The limits should be enough to cover potential legal fees and damages. A common recommendation is to have at least $100,000 in liability coverage, though more may be necessary based on your assets and risk exposure.
  • Additional Coverage: For risks not covered under standard homeowners policies, such as floods, earthquakes or specific high-value items like art or jewelry, additional or specialized insurance policies may be required. Assessing the environmental risks specific to your area or the value of special items can guide the amount and type of additional coverage needed.

Accurately determining your coverage levels will help ensure financial protection without overpaying for insurance premiums. 

How to Get Homeowners Insurance

Securing homeowners insurance involves several key steps, from assessing your coverage needs to finalizing the purchase of a policy. Take a look at the steps below to streamline the process when you decide to get a policy:

1
Assess Your Needs

Before shopping for insurance, evaluate what you need to protect. Consider the value of your home, personal belongings and any specific risks your property faces (like floods or earthquakes).

2
Inventory Your Property

Create a detailed list of your possessions and their estimated value. This will help you determine the coverage amount for your personal property and streamline the claims process if needed.

3
Research Insurance Companies

Look for insurers that offer homeowners policies in your area. Check their financial stability through rating agencies like AM Best or Standard & Poor’s, and read customer reviews to gauge their service quality.

4
Compare Quotes

Compare home insurance quotes from several providers to evaluate prices and coverage options. Ensure that each quote includes the same coverage and deductibles so that you compare like for like.

5
Evaluate Coverage Details

Examine the details of each policy, including what is and isn’t covered. Pay particular attention to coverage limits, deductibles and exclusions. This is crucial for understanding how much you’d pay out-of-pocket in various scenarios.

6
Ask About Discounts

Many insurers offer discounts for things like installing security systems, bundling policies or having a smoke-free home. Inquire about any discounts for which you may be eligible.

7
Choose a Policy

Select the best homeowners insurance policy that balances cost, coverage and customer service. Ensure it adequately covers your needs without adding unnecessary extras that inflate the cost.

8
Finalize the Purchase

Contact the insurance company to finalize your policy. This will typically involve signing a policy agreement and setting up payment. You may need to provide additional documentation or have a home inspection.

9
Review Your Policy Annually

Circumstances change, and so might your insurance needs. Review your policy each year to ensure it still provides adequate coverage. Adjust it if you’ve made significant purchases or improvements to your home or if there are changes in local building costs or the environment.

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MONEYGEEK EXPERT TIP

When getting homeowners insurance, ensure you have documentation such as property details, proof of ownership of valuable belongings and any prior insurance history to expedite the process.

FAQ About Home Insurance Requirements

While homeowners insurance isn't legally mandatory in most cases, understanding its benefits and how it protects your investment and belongings will help ensure peace of mind and financial security. Read through our frequently asked questions to learn more.

Are you required by law to have homeowners insurance?
What is the best homeowners insurance company?

About Mark Fitzpatrick


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Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.