Homeowners Insurance: How Important Is It?

Insuring your home against unforeseen natural disaster, theft and lawsuits is not only important, it is usually required if you finance your home through a lender. The reason for this is simple – mortgage lenders and banks that finance property sales want to protect its collateral: your home. While you are free to shop around for a policy, the lender will usually make certain requirements about the size of the total policy and the size of the deductible on the policy. However, you can usually limit the size of your insurance policy by the size of your mortgage. Most lenders only require that the amount of your loan be insured. This means that the more money you are able to put down up front, the less you will have to insure. Your deductible, however, is required to stay the same, regardless of the size of your policy. The deductible on your homeowners insurance is the amount you pay out of pocket before the insurance coverage kicks in. While a higher deductible usually means lower premiums, many mortgage lenders will not allow you to have a deductible higher than $1200-$1500. Further, the mortgage lender will usually require that they are listed as a “loss payee” on your insurance policy. This means that if disaster strikes, the insurance payment will go to them. This ensures that the insurance money is used to either repair the house or pay off the loan.

If you are able to buy your house without financing it through a mortgage lender or bank, or you have paid your mortgage off, then you are not required to have home insurance. However, while not required by law, protecting your home from loss is extremely important. Aside from protecting the house from unexpected natural disasters, such as fire, floods, or hurricanes, home insurance can protect your personal property within the house, and cover certain types of judgments against you in a lawsuit.

If you have questions about the types of homeowners insurance available, policy limits or requirements of lenders, or coverage needed when buying a home you should talk to your real-estate attorney or insurance agent. Homeowners insurance should not be viewed as just another expense of buying a home. Buying a home is one of the most important investments that one will make in their lifetime, and homeowners insurance will ensure that this investment is protected.