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Do You Have to Have Homeowners Insurance?

Homeowners insurance isn’t required by law, but your lender may require a policy. Keep reading to learn more about when you have to have homeowners insurance and the benefits of this type of coverage.

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Homeowners insurance protects your home and personal belongings from damage and provides coverage if you’re involved in liability claims. While homeowners insurance isn’t required for every homeowner, it does offer peace of mind that you won’t have to pay for any covered accidents yourself. Keep reading to learn about the other benefits of homeowners insurance, when you need a policy, and how to find the best home insurance for your home.

What Is Homeowners Insurance?

Homeowners insurance is a type of policy that protects your home and personal belongings and typically comes with these six areas of coverage:

  1. Dwelling—This is the part of the policy that covers the home itself. If an event destroys your home, your policy will cover the cost to rebuild it and all of its built-in elements, like the cabinetry and electrical work.
  2. Other structures—This covers any of the structures that are on your property but not attached to your home. For example, other structures coverage could protect a fence or shed.
  3. Personal property—If your personal belongings are damaged, your policy will pay to replace them.
  4. Additional living expenses—If an event severely damages your home and you have to live elsewhere during repairs, your policy will pay for living expenses during that time, like the cost of a hotel room or the cost of eating out for every meal.
  5. Liability—If you’re responsible for an accident that hurts someone or damages their belongings, your policy will pay for any medical bills, replacement costs, or legal fees.
  6. Medical payments to others—If a guest is injured in your home, your policy will cover a certain amount of the guest’s medical bills.

Is Homeowners Insurance Required?

Homeowners insurance is not required by law, but if you have a home loan from a mortgage company, that company will likely require hazard insurance.

Hazard insurance is another name for the other structures and dwelling coverage in a homeowners policy. The reason lenders require this type of coverage is because the structure of your home is used as collateral for your loan. If you fail to pay your mortgage, your lender will take the home and resell it, and they can’t resell it if it’s in poor condition.

In addition to requiring hazard insurance, your lender may also insist on a few other requirements:

  • Replacement cash value policy—Replacement cash value (RCV) is a policy option that will rebuild your home based on its new value. Most policies start as actual cash value (ACV) policies, which means your insurance company will cover the depreciated cost of your belongings and home if they’re damaged. For example, if your roof is damaged by a natural disaster, your provider will write you a check only for what the roof cost when it was installed under an ACV policy. With an RCV policy, your provider will cover the entire replacement cost based on what a new roof for your home would cost today. This RCV requirement is common for older homes and homes in disaster zones.
  • Flood insurance—If you live in a flood zone, your lender may require a separate flood insurance policy because water damage from flooding isn’t covered under a standard homeowners insurance policy.

4 Reasons to Buy Homeowners Insurance

In addition to meeting your lender’s requirements, having homeowners insurance coverage offers the following benefits:

  1. Protection away from home—Personal property coverage and liability coverage protect you even when you’re away from home. For example, if you’re on a trip and your luggage is stolen, your provider will replace your belongings. If you’re at a dog park and your dog bites someone, liability coverage will pay for that person’s medical bills.
  2. Financial protection—According to the Insurance Information Institute, homeowners insurance costs about $101 per month. While this may seem like a lot of money, it could cost less than an event that causes hundreds of thousands of dollars worth of damage.
  3. Protection from 16 types of perils—Homeowners insurance protects your home and personal belongings from 16 common perils, including fire, theft, falling objects, hail, and wind.
  4. Additional coverage options—If you want more coverage than a basic policy will offer, you can customize your coverage with endorsements. Most companies offer endorsements for valuable personal property, earthquake damage, identity theft, and more.

How to Find the Best Homeowners Insurance

Here are a few tips to follow when purchasing homeowners insurance:

  • Determine your home’s rebuilding cost—This is the first step you should take because your rebuilding cost will be used to calculate the amount of dwelling, other structures, personal property, and loss of use coverage. You can estimate the cost to rebuild by talking to a local appraiser or getting a quote from your insurance agent.
  • Determine if you’re eligible for discounts—Insurance companies usually offer discounts for being claims-free, having a new roof, bundling home and auto policies, and having safety features in your home. Determine if you’re eligible for any discounts and have that information ready when requesting a quote.
  • Request a quote from your auto insurance provider—The first insurance company you should look at when buying home insurance is your car insurance provider. You’ll already know what to expect from the company, and you’ll likely get a discount for bundling home and auto insurance.
  • Get quotes from at least two other companies—After getting a quote from your auto insurance provider, get at least two more quotes from other home insurance companies. This allows you to compare a variety of coverage and pricing options.

Our Conclusion

Homeowners insurance is required only if your lending institution says you need it to get a home loan. Even if you don’t need a loan or have already paid your loan off, a home insurance policy is still a good idea because of the protection and peace of mind it provides. To see which home insurance companies are available in your area, input your zip code into the tool below.

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