Very often your mortgage lender will require some sort of home insurance coverage. Although, in some states you can legal own a home without homeowners insurance. This is a different situation than auto insurance, where in most cases you are required by law to carry.
Your home insurance policy is designed to cover your personal belongings and house from damage covered under the policy. The damage would have to be caused by a covered peril but homeowners insurance is not always required by law.
In most cases it’s the mortgage company that makes it a requirement that you carry home insurance before securing a purchase of a home. If you’re able to pay for the home in cash there is a good chance you can just not get a homeowners insurance policy and stay within your legal limits.
Are there any laws that require homeowners insurance
When you take out a loan you are required to follow set rules by the mortgage lender. Remember that thick stack of paperwork you signed? Like most of us you probably didn’t have time to read the whole package. Well, somewhere in there it says they would like you to carry some sort of homeowners insurance coverage.
Very similar to disability and life insurance policies, home insurance is not a legal requirement. That doesn’t mean you won’t be required to carry it. It is within your mortgage lenders right to require you to carry some form of home insurance.
In a worst case scenario, if you do not pay your home insurance policy premiums, the homeowners insurance company will notify the mortgage company who will ask you to get a new policy or pay what you owe to the home insurance company. If for whatever reason you do not pay for your home insurance premiums, the mortgage company will be within their right to foreclose on the home.
In most cases flood insurance is not a requirement either. This of course is depending on whether or not you live in an area where hurricanes are common. The regulations for flood insurance comes from FEMA and the National Flood Insurance Program (NFIP). If you live in an area that just so happens to be in an area with high flood risk and carry a mortgage on the home, your mortgage company may be legally mandated to require you carry flood insurance coverage on the home.
What is the reason for lenders requiring homeowners insurance
When you have debt the entity lending you the money wants to protect their investment. The easiest way to do that is with an insurance policy. Please don’t get confused between homeowners insurance and private mortgage insurance (PMI). PMI is a requirement if you owe a large portion of the property value to the bank. Homeowners insurance is actually designed to cover you, the homeowner.
Homeowners insurance may be a requirement by the mortgage lender to potentially keep the home in livable condition. For example if an event was to create severe damage to the home, the mortgage company wants the peace of mind in knowing you will be able to rebuild the home and lessen the chance of a foreclosure.
If you still have questions regarding your personal policy, please reach out to one of our agents. They would love to answer your questions and get you a better homeowners in surname policy if you need it!