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There is no law that says you have to purchase homeowners insurance if you own a home, as stated by the Insurance Information Institute (III). However, very few home buyers can pay cash upfront for such an expensive purchase. Most people will need to finance most of the cost of a home, and that means going to a mortgage lender. As a condition for obtaining a home purchase loan, a mortgage lender will require that you carry homeowners insurance throughout the duration of your mortgage.
When a mortgage company lends hundreds of thousands of dollars for a home purchase, the home serves as collateral for the loan. Lenders want to protect their investment in case a catastrophe destroys or severely damages the property. For this reason, they insist that borrowers purchasing a home have the protection of a homeowners insurance policy that will pay for the home to be repaired or rebuilt in a covered loss.
Your lender may require you to carry homeowners insurance that provides protections against fire, hail, lightning, hurricanes, tornadoes, and other natural disasters, depending on your area. If you live in a flood zone, your mortgage company will also require flood insurance, which is not included in a homeowners insurance policy, but can be purchased separately. If you live in California or another area prone to earthquakes, your lender may require that you purchase separate earthquake insurance.
If you are like most people, your home is one of the biggest investments you will ever make. A disaster, such as a fire, tornado, or hurricane could destroy your home and the belongings it contains in a matter of hours or less. Even after your mortgage is paid off – or if you paid cash or inherited the home — it makes financial sense to maintain your homeowners insurance coverage, to protect one of your largest assets. The property is not only collateral for your lender – it is also your home.
A standard homeowners policy can also protect from liability in case someone else is injured on your property, or if you, a family member, or even a pet accidentally damages property belonging to another. For example, your homeowners liability coverage would apply in the following scenarios:
A home is a substantial asset. If you own a home, you need homeowners insurance, not only to satisfy your lender, but also to protect your significant investment in the purchase and maintenance of the property. Our experienced agent can help you get the best quote on a homeowners insurance policy and any additional coverage you may need to protect your home.Filed Under: Personal Insurance | Tagged With: Homeowners Insurance