Find the Cheapest Homeowners Insurance Quotes in Your Area
You are not legally required to have homeowners insurance, but your mortgage probably requires it. Banks and other lenders often require their customers to have a homeowners policy to safeguard the value of the loan in case something bad happens to your home. Mortgage lenders won't allow you to close on a loan until you meet their insurance requirements.
You could decide not to get homeowners insurance if you don't need a mortgage or if you've already paid off your home loan. Although you don't have to have insurance as a homeowner, it's an effective way to protect yourself from a variety of perils that could lead to large costs.
Do I need homeowners insurance?
You don't need homeowners insurance if you can afford your home without a mortgage, but it's probably not a good idea to go without any coverage. If you decide to skip on homeowners insurance, you would be responsible for paying out-of-pocket to repair any damage to your home. This means that if you didn't have insurance, you'd be exposed to everything from broken windows to tornadoes and fires that could affect your entire house.
Imagine a fire destroys your house. Without the dwelling coverage that comes with your home insurance policy, you would have to pay for the entire cost of rebuilding on your own. After a destructive fire, replacing your physical house without insurance is only your first problem.
Having a homeowners policy in this situation would also provide you with additional living expenses if your dwelling becomes uninhabitable. If you need to stay in a hotel while your home is rebuilt and you don't have insurance, you would have to deal with a high hotel bill — especially if you're in a big city like New York or San Francisco. Homeowners insurance provides "loss of use" coverage that will compensate you for those costs.
Not having insurance also exposes you to the risk of losing your personal possessions. If the fire that destroys your home also burns the belongings within, you could be facing another large cost before you can regain your old standard of living.
Finally, a homeowners policy grants you liability coverage if someone sues you for personal injury or damage to their property. Imagine your dog bites a passing jogger, sending them to the hospital. If you're uninsured and the jogger sues you for damages, you would have to pay your own legal fees along with any damages awarded by the court.
Do I need homeowners insurance for extended perils?
Even though you might have a home insurance policy, if you don't have extended coverage you might be just as unprotected as someone who is uninsured. The most common form of home insurance does not protect your home from certain named perils, like earthquakes or floods. Mortgage lenders often require flood insurance for homes that sit on at-risk land. But if you live along a coastline that experiences floods and you don't have flood insurance for some reason, you would be responsible for covering any costs from flood damage yourself.
Do you have to pay for homeowners insurance?
If you need a mortgage and your lender requires you to buy a policy, you still have to pay for homeowners insurance after your mortgage closes. Imagine you stopped paying for your policy after you received your loan from a bank. After you miss multiple payments, your coverage will lapse.
If your policy lapses by even one day, your lender will consider you uninsured and therefore in breach of your mortgage agreement by failing to meet its requirements. If this happens, your lender will assign you to an insurer and policy of their choosing, and you will be required to pay for it. If you are unable to pay for a lender-placed policy, you could face foreclosure.
Lender-placed policies are typically much more expensive and might provide poorer coverage than your old policy. A lender-placed policy might not include sufficient protection to your belongings because the bank's choice of policy will only reflect its interest in protecting the structure of your house, not its contents. Having a lender-placed policy in your home's CLUE report can also make insurers less willing to work with you in the future.
What happens if my homeowners insurance is canceled?
If you have a mortgage and your insurance is canceled, you would face the same consequences from your lender as someone whose home insurance policy lapsed. Your insurance company has the power to cancel your policy within the first 60 days of coverage if they think you have misrepresented your identity during your application.
Allowing the condition of your home to deteriorate beyond your insurer's standards could also result in your policy getting canceled. After your insurer notifies you of the cancellation, you will have 30 days to fight their decision or to find new coverage. Either way, you should avoid having a gap in your coverage.