If you’re buying a home, one question you might have is whether home insurance is required when you own a house. In many cases, homeowner’s insurance is indeed mandatory, and even in cases where it isn’t absolutely necessary, it’s still a good idea.
To help you understand why, here’s a look at exactly what homeowner’s insurance is, why it often is essential, and what can go wrong if you don’t have it.
What is homeowner’s insurance?
As with other types of coverage (including health insurance), home insurance requires homeowners to pay a relatively small amount of money monthly or annually in exchange for the promise that your provider will help you pay for any unexpected costs you might incur.
What can go wrong? So much, including natural disasters, fires, crimes, accidents, and other emergencies, many of which can be expensive to fix. Without home insurance, you run the risk of getting stuck with a bill that could be in the tens of thousands of dollars. Home insurance offers protection and peace of mind that you won’t get hit with expenses that might be difficult to pay on your own.
Why you need home insurance with a mortgage
If you need a mortgage on your home, most lenders will require you to get home insurance before they approve your loan and close the deal. The reason: By loaning you money for the house, lenders also are investing in your property.
If this investment suddenly decreases in value—for instance, if a tornado turns it into a pile of rubble—it’s in your lender’s interests for you to have a home insurance plan that will rebuild and restore what you (and your lender) have lost.
When to get homeowner’s insurance
At the closing, most mortgage lenders will require you to show proof that you already have an insurance policy in place. This proof is known as an insurance binder and serves as a temporary agreement between you and the insurance company that becomes permanent once you officially close on the home. In fact, most lenders will want to see an insurance binder at least a few days before closing.
As such, you’ll want to begin shopping for insurance a few weeks before your closing date, so you have time to compare policies and find the right insurance company for you.
Do you need homeowner’s insurance without a mortgage?
You’re not technically required to have homeowner’s insurance if you don’t have a mortgage. But then the question becomes, “Should you pay for home insurance?” The answer is still a resounding yes.
Even if you don’t have a mortgage, home insurance protects the investment you’ve made in your house. Imagine the worst-case scenario, because that’s really what insurance is for: If your house burned down or was destroyed by a tornado, would you suffer financially?
What does home insurance cover?
These are some of the most common and expensive insurance claims homeowners experience:
Wind and hail: This type of damage is the most frequent reason why homeowners file insurance claims. Every year, 1-in-40 insured homeowners file claims related to wind and hail, with claims paying out an average of $11,200.
House fire or lightning strikes: Every year, about 1-in-350 insured homeowners file claims due to fire or lightning. These accidents also are some of the most expensive to repair, with claim payments averaging $11,971. Furthermore, lightning strikes are becoming more expensive because many homes are outfitted with an increasing number of electronic systems, such as smart-home technology, which can go haywire when struck by lightning.
Water damage or freezing water: About 1-in-50 insured homeowners file a property damage claim caused by water damage (like a leaky roof) or freezing water (burst pipes) annually. The claim payments average $10,849.
Theft: About 1-in-400 insured homeowners file claims due to theft every year, with claims paying an average of $4,391.
Personal injuries damage: In addition to covering your home and belongings, home insurance often includes liability coverage. This means that if a visitor gets hurt on your property, his or her medical bills should be covered by your home insurance company. About 1-in-900 insured homeowners file claims related to bodily injury every year. This injury could happen inside your home or, in some cases, elsewhere. For instance, if your dog bites someone on your property or even on the street or down the block, that is typically covered by your home insurance. And good thing, too, since the average claim to cover the injured party’s medical bills is about $45,000.
