Some homeowners pay cash or their home or satisfy all the mortgage payments, and feel they no longer need homeowners insurance protection. There is no law that says you have to purchase homeowners insurance if you own a home.. 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.
Why Mortgage Lenders Require Homeowners Insurance Coverage
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. Usually to ensure homeowners insurance is maintained on the home, the mortgage company will pay the annual policy premium out of the borrower’s escrow account.
Insurance Coverage You Will Need On Your Home To Satisfy Your Mortgage Lender
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.
Homeowners Insurance Protects You As Well As Your Lender From Loss
For most people, your home is one of the largest 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 Homeowners Policy Can Help Protect You From Liability
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:
- One of your teenage children invites over a friend who trips on a vacuum cleaner cord and falls, breaking her wrist.
- A large tree limb in your backyard falls onto your neighbor’s property, causing structural damage to his or her fence.
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.Most importantly our agent will answer the question, what does homeowners insurance cover?
