Finding out you need to get home insurance coverage before you can close on your loan can be nerve wrecking.

But it doesn't have to be:

There are some very fast ways to get a home insurance quote and depending on your specific situation homeowners isn't actually always required.

is homeowners insurance required

In this post today I will help answer the question is homeowners insurance required and help you understand when you must have it and situations where it probably isn't required.

In This Article



Is Homeowners Insurance Required By Law?

While you might be legally required to purchase car insurance, the same can't be said about homeowners insurance.

Home insurance isn't legally required at any level of law from local to federal.

However, mortgage lenders can legally require you to buy a homeowners insurance policy before they will fund the mortgage.

The lender can even foreclose on your home if you don't keep your policy active and in good standing.

Earthquake and Flood insurance isn't required either, but if you live in a place that often has floods the rules change a bit for Flood insurance.

If you obtain a mortgage from a federally regulated lender then it is legally required for you to have flood insurance if you live in a place that is prone to flooding.

THE SIMPLY INSURANCE WAY

Home Insurance made easy.

Agents not required.

Get quotes and sign up online without talking to an agent. But, we are here if you need us.

Unbiased, expert advice.

Get unbiased insurance education from licensed experts and also avoid dodgy sales calls.

Coverage in minutes.

You can get home insurance coverage within minutes of getting your quotes and applying.

Why Is Homeowners Insurance Required By Lenders?

The answer to this is of course a very selfish one, but in the end it helps everyone.

The lender is giving you a ton of money, let's be honest, almost none of us know anyone that would let us borrow the amount of money needed to purchase a home.

They want to make sure you are in a financial position to keep paying your mortgage and to stay in your home if a disaster struck.

Just imagine if a tornado destroyed your home and you didn't have any insurance.

Would you honestly keep paying the mortgage on a home that you can't even re-build?

How would you feel to lose your home and have no way to recoup from it?

The mortgage company isn't really thinking about you when they require you to get coverage, but as I said, in the end, the fact they require it really helps you in the long run.

INSURANCE WHERE YOU LIVE

Home insurance by state.

What Will Your Lender Require To Be In Your Policy?

Your lender may give specific guidelines to you and your agent as to what parts of coverage you will need in your policy.

Things like certain hazards that need to be covered and naming them as a loss payee on your policy.

They Might Require Replacement Cost Coverage

Your lender might require that you have a policy that has a replacement cost structure (RCV) instead of an actual cash value policy (ACV).

Replacement cost policies cover the entire cost to replace your home where the actual cash value policy will only cover the current value of the home.

A couple occasions where lenders may instruct you to acquire a RCV policy rather than ACV policy are:

Your Home Is Super Old

If your home is really old and hasn’t had any modern cosmetic or structural improvements since it was constructed, an ACV policy would only pay to replace damage after 80 or so years of depreciation is accounted for.

That would leave you with a very small claim check and you’d have to cover the rest out of pocket.

Mortgage companies may view the risk of loaning you money too high.

Your Home's In A Disaster Area

If your home is in an area susceptible to natural disasters like hurricanes, earthquakes, mudslides and floods, your lender may suggest your payout be based on the extended replacement cost (ERC) of the materials or labor.

Extended replacement cost policies cover you if materials and labor increase over time to cover the difference.

Lenders Can Require Flood Insurance

If your house is located in the FEMA designated flooding areas "A" or "B", all lenders will require federal flood insurance.

Lenders could even require flood insurance if the home is in floodplain “C”, which have less flood propensity but are still at-risk areas.

Lenders Might Have Other Policy Requirements

Lenders may require that you supplement your hazard insurance (dwelling, other structures, personal property, and loss-of-use coverage) with riders or additional coverage types that protect against certain perils.

Depending on where you live, your lender may instruct you to add earthquake or hurricane insurance.

Lenders Are Required To Be Your Loss Payee

Your homeowners insurance company will require that your lender is named as a loss payee along with yourself.

That means that if you suffer a loss and file a claim, the claim check is made out to you and your mortgage lender.

You’ll still be covered, but your lender must sign off on the check to ensure that the expenses are going toward covering the loss and not your new car.

THE SIMPLY INSURANCE WAY

Home Insurance made easy.

Agents not required.

Get quotes and sign up online without talking to an agent. But, we are here if you need us.

Unbiased, expert advice.

Get unbiased insurance education from licensed experts and also avoid dodgy sales calls.

Coverage in minutes.

You can get home insurance coverage within minutes of getting your quotes and applying.

What Happens If My Policy Gets Cancelled?

There are several reasons your home insurance company could cancel your policy.

Maybe you forgot to mention that you have a blacklisted dog or stopped paying the monthly premiums.

You could have filed too many claims and are now seen as too high of a risk.

do I need home insurance

Whatever the case, mortgage companies will require that you have and keep insurance.

Below are steps you will need to take if this happens:

You Have To Buy A New Policy (You Will Have Time)

The insurance company is required to give you and your lender a 30 day notice before your policy is cancelled and the cancellation takes affect.

You should check your CLUE report to make sure your claims history isn't too busy or most insurance companies may still decline you for coverage.

Look Into State Sanctioned Plans

Being in the position of being un-insurable is never a good feeling and if that happens to you, you still have options.

That’s where Fair Access to Insurance Requirements or FAIR plans come into play.

While these policies are much more expensive, they might be your only option for a while because they are made for people who are considered high-risk.

Your Last Resort - The Lender

Yes, your lender might buy the insurance for you however you will see an increase in your monthly mortgage payment and it is usually up to 3 times more expensive than traditional homeowners insurance.

Taking Action

Hopefully I have clearly answered the question is homeowners insurance required.

While it isn't legally required you would honestly be a fool to go without it, especially with all of the crazy weather patterns and people in this world.

If you don't have coverage you need to click here or that button above as fast as possible and get the process started.

You probably didn't know this but more than 70% of people don’t shop for their homeowners insurance, they just take what is given to them.

So you are already ahead of the game by reading this article and getting started.


Sa El

About the author

Sa El is the Co-Founder of Simply Insurance and a licensed Insurance Agent with over 11 years of experience in the industry.  He specializes in Life & Health Insurance and is certified in Long Term Care Insurance in the state of Georgia. He is also an Official Member of the Forbes Finance Council, a licensed real estate agent in the state of Georgia (License #382602), an entrepreneur, insurance educator, and freelance writer.

Sa El is the Co-Founder of Simply Insurance and a licensed Insurance Agent with over 11 years of experience in the industry.  He specializes in Life & Health Insurance and is certified in Long Term Care Insurance in the state of Georgia. He is also an Official Member of the Forbes Finance Council, a licensed real estate agent in the state of Georgia (License #382602), an entrepreneur, insurance educator, and freelance writer.

Your Signature


{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}