Is Home Insurance Required When You Buy a House?
If you’re buying a home, one question you might wonder is this: Is home insurance required when you own a house?
In many cases, homeowners 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, we’ve put together this Home Buyer’s Guide to Home Insurance, which will help walk you through what you need to know from beginning to end.
In this first article, we’ll introduce you to what homeowners insurance is, why it’s often essential, and what can go wrong if you don’t have it.
What is homeowners insurance?
With home insurance, as with other types of coverage (including health insurance), you pay a relatively small amount of money either monthly or annually in exchange for the promise that your provider will help you pay for unexpected costs you might incur as a homeowner.
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 hard 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 are also investing in your property. If this investment suddenly plummets in value—since, say, a tornado turned 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.
“Homeowners insurance is typically required by a mortgage company,” says Brian Rubenstein, senior director for Ally Home. “A lender wants to protect the financial investment they made in your home.”
When to get homeowners insurance
At closing, most mortgage lenders will need you to show proof that you have an insurance policy already in place—even though you don’t officially own the home yet! 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 start 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 homeowners insurance without a mortgage?
Now, what if you don’t have a mortgage? Technically speaking, no, you’re not required to have homeowners insurance. But then the question becomes “Should you pay for home insurance?” The answer is still a resounding yes.
“Even if you don’t
