Is home insurance required by law?

Homeowners insurance is not required by law in any state, but mortgage companies usually insist you get a policy.

A senior couple reading their mortgage contract at home

The simple answer is that homeowners insurance is not required by law in any state. But that answer can lead to other questions, such as:

  • Are there any other reasons home insurance might be required?

  • Why do most homeowners get coverage?

  • What happens if I don’t get home insurance?

We answer all of these and more below.

When is homeowners insurance required?

If you have a mortgage on your home, your mortgage lender most likely required you to get homeowners insurance before it finalized your loan. Your bank probably asked for proof that you have a policy, too.

Why? Because your lender is technically part owner of your home, which means it has an insurable interest. If your home is damaged by something like a fire or a storm, home insurance helps you pay for making repairs or rebuilding.

Imagine what could happen if your home were destroyed and you couldn’t afford to rebuild it. Would you continue to make your mortgage payments? Maybe, but then again maybe not. If your house is uninhabitable, then the mortgage has little to no value. This means foreclosure isn’t a great option for the mortgage company to recoup its losses, either. 

Long story short, your home insurance protects your mortgage holder from financial losses after a disaster as much as it protects you.

Your bank may also require you to purchase flood insurance or earthquake coverage  in certain locales. This typically happens if your home is in a designated flood plain or an area where earthquakes are common.

Another reason you may have to get home insurance? Your homeowners association (HOA). Some HOAs make homeowners insurance mandatory in their rules. If you don’t comply, then the HOA might:

  • Fine you.

  • Take you to court.

  • Place a lien on your home.

This may be true even if you own your home outright and don’t have a mortgage.

How much homeowners insurance does a lender require?

Typically, your lender wants you to insure your home up to the amount it would cost to rebuild it at today’s prices (i.e., its replacement cost). This can differ from the current market value or assessed value of the home.

Some lenders may also dictate the type of policy you purchase and may also require that you list it as an additional insured or “loss payee” on your policy. This helps protect the bank’s stake in your property if you have a loss.

What happens if you don’t have home insurance?

If you don’t purchase home insurance when your lender requires it, get a policy that doesn’t meet your lender’s standards, or allow your coverage to lapse, your mortgage lender may purchase coverage for you. This is called force-placed insurance, and it is usually more expensive and provides less coverage than a policy you buy on your own.

You’ll be required to pay the lender for the policy they take out on your behalf. And while force-placed insurance does protect your dwelling from hazards like fire, windstorms, and vandalism, it usually won’t cover your personal belongings, furnishings, appliances, or personal liability.

But let’s say you don’t have a mortgage so you simply choose to forego coverage. You may save money in the short term, but what happens if your home is significantly damaged – or worse, destroyed – by a storm, fire, or some other type of unexpected event? The cost of rebuildings comes out of your pocket. 

Do you have to have homeowners insurance?

While there’s no law that says you have to get home insurance, coverage is always a good idea. A policy protects you from the financial consequences of most property losses you might experience, including damage caused by a catastrophic storm or a simple hailstorm. It may also help cover your personal property inside of your home. A small kitchen fire won’t seem so small when you have to replace flooring, cabinets, countertops, and even pots and pans.

Homeowners insurance can also include liability coverage, which is essential to protecting your financial stability. It covers you when someone claims you have caused an injury or property damage.

Ultimately, homeowner insurance protects your most valuable asset, your home. Without a quality homeowners policy, you put your home, your belongings, and your financial future at risk.


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