Do you really need insurance for your home? Homeowners' insurance is a little different than, say, auto insurance. For starters, if you own a home you’re not legally required to carry insurance on it. But there are some times when you may be required to carry coverage for your home for other reasons... and other times when it just makes good sense.
Are you one of these three people who will need homeowners’ insurance?
New Home Buyers
Ready to purchase your first home? When you’re using the payment calculators on your favorite home searching sites, there’s a reason you’re going to see estimates for homeowners' insurance included along with principal, interest, and mortgage insurance.
Lenders typically require that you carry homeowners' insurance if they’re going to fund your home loan.
When you obtain a home loan, your new house becomes collateral. If a lendee happens to default on a loan, the lender can take the home to get their investment back. But if the home in question has been damaged or destroyed by fire, vandalism, windstorm, or some other peril, and doesn’t have insurance coverage in place, that lender is left with nothing but a financial loss.
Takeaway: Obtaining valid insurance on your home is generally one of the conditions that must be met before your loan closes. Your lender may specify a minimum level of coverage for your home.
Refinancers and Remodelers
Thinking about refinancing or obtaining a line-of-credit for a remodel of the home you already own? Once again, you can safely assume that your lender will require valid homeowners’ insurance coverage be in place before your loan can close.
If you already have homeowners’ insurance in place, refinance or remodel could have an impact on your existing policy. A lender will assess the current value of your home, which could be significantly higher than it was when you purchased it - particularly if you’ve done improvements. Your lender is likely to require your insurance policy be sufficient enough to cover the cost to rebuild your home at its current value.
Before you start working on your own remodel project, talk to your insurance agent and your lender about the ways that home improvement or refinances can impact your policy limits, coverage, and cost.
Congratulations, you’ve paid off your mortgage and own your home free and clear. You’re no longer required to carry homeowners’ insurance to satisfy your lender. But that doesn’t mean you should cancel your policy.
Did you know that 45 million homes across the US are at risk for wildfire? And 2 million of those are in California alone.
Homeowners’ insurance typically covers damage from unexpected incidents such as fires, wildfires, lightning strikes, hail, and wind. It also covers the personal property you have within your home, such as your electronics, furniture, clothing, sporting goods, and collectibles. That means your stuff is generally covered from theft, vandalism, fire, and other covered perils.
Your policy may even protect your personal belonging when you take them on vacation, as well.
Without the protection of homeowners’ insurance, you’re responsible for the entire cost of repairing, rebuilding, or replacing your home - and everything in it - if something goes wrong.
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And that’s not all.
Homeowners’ insurance provides liability protection for your home and family, as well. Suppose one of your kids’ friends has come over to play and is injured on your property. Or a neighbor trips on your front porch and falls. The liability protection of homeowners’ insurance protects you from the high costs of medical bills or legal fees in the event of a third-party bodily injury that occurs on your property.
But this essential coverage doesn't cover everything...
Depending on where your home is located, it may be a smart idea to expand the coverage of your homeowners’ insurance with earthquake and/ or flood protection.
All fifty states have experienced floods or flash floods in recent years and, according to FEMA, 20% of all flood claims come from low to moderate risk regions. And nearly everyone in California lives within 30 miles of an active earthquake fault.
While earthquakes and floods are typically excluded from a standard homeowners’ insurance policy, additional coverage can easily be added to your policy to better protect the home you love - and everything inside it.
Whether you’re an established homeowner or a first-time buyer/ refinancer who needs homeowners’ insurance to obtain a mortgage, the security of homeowners’ insurance is a worthwhile investment. Your home is a reflection of you, and it’s filled with the people and belongings that you treasure. Homeowners’ coverage allows you to protect all of that from the truly unexpected.