Do You Have to Have Homeowners Insurance?
If you have a mortgage, the bank almost always requires you to get home insurance.
Find Cheap Homeowners Insurance Quotes in Your Area
Home insurance isn't required if you don't have a mortgage. But it's still a smart choice for paid-off homes because it helps pay to fix or rebuild the house if something happens. That could save you a lot of money if your home has major damage, like a serious roof leak or wildfire damage.
Is homeowners insurance legally required?
Homeowners insurance isn't required under any U.S. federal or state laws. However, if you have a mortgage, you typically need to have homeowners insurance.
The government doesn't require home insurance like it requires car insurance. This means that if you don't have a mortgage on your home, you aren't legally required to have home insurance.
Is home insurance required? | ||
|---|---|---|
| If you have a mortgage | Yes | |
| If you don't have a mortgage | No | |
What Is Homeowners Insurance?
Home insurance helps pay to fix or rebuild your home if it’s damaged by things like fires, storms or theft.
It also helps replace your belongings if they’re stolen or destroyed and covers costs if someone gets hurt at your home and sues you.
Why is homeowners insurance important?
Homeowners insurance protects your home, which is typically your biggest financial asset. It can help you avoid large repair bills, protect against lawsuits and even pay for you to live somewhere else if your home is badly damaged.
For example, replacing your roof after a storm could cost $10,000 or more without insurance.
In addition, if the damage is very bad you may not have to move out of your home until the repairs are done. Homeowners insurance can also help cover the cost of a hotel or rental home, movers and extra gas to get to work.
Even if your home is paid off, homeowners insurance could save you a lot of money if your home has serious damage or someone gets hurt on your property.
Most basic homeowners insurance policies include the same standard coverage:
- Dwelling coverage protects the structure of your home, like the roof, walls, floors and electrical system.
- Personal property coverage pays to fix or replace stolen or damaged belongings. This can include things like furniture, clothes, window treatments and small appliances. It even covers your belongings when you're traveling.
- Personal liability coverage protects you if someone sues you for injuries or property damage you accidentally caused. For example, if your tree falls on your neighbor's house, personal liability coverage will pay to fix any damage to their home.
- Loss of use coverage pays your additional living expenses if your home isn't safe to live in after damage covered by your policy, like a fire. For example, it would pay for your hotel stay and meals out until your home is fixed.
- Coverage for other structures pays for damage to sheds, detached garages, fences and other buildings not attached to your home.
Many companies also allow you to add extra coverage to your policy, called endorsements or floaters. For example, you can increase protection for expensive jewelry, sports equipment or antiques.
Why do mortgage lenders require homeowners insurance?
Banks require home mortgage borrowers to have insurance because your lender views your home as an investment.
When you have a mortgage, the bank owns the part of your house that you haven't paid off. That's why your lender wants to make sure you can afford to repair or rebuild your home if it's damaged or destroyed.
Many homeowners pay their homeowners insurance through an account managed by their mortgage company. This is called an escrow account.
Your bank may charge higher closing costs if you choose not to pay for your insurance on your own. They prefer to pay the bill for you so they can make sure you always have protection.
Your lender typically requires you to have enough dwelling coverage on your insurance policy to cover the balance on your mortgage. Dwelling coverage protects the structure of your home, like the foundation, walls and windows.
However, most insurance companies require your dwelling limit to be at least 80% of the cost of rebuilding your home. As a result, you may end up with more coverage than your lender requires.
The bank doesn't typically care about the other coverages on your policy, since they're only concerned with protecting your home. You should choose personal property and liability limits based on your specific situation.
What happens to your mortgage if your homeowners insurance is cancelled?
If your home insurance company cancels your policy, your lender will automatically get coverage for you. This is called force-placed insurance policy.
Force-placed insurance is typically much more expensive than a regular policy, and has less coverage.
This can also happen if:
- You miss a payment and let your policy lapse
- You can't find a company that will insure your home
- You choose not to buy a policy
Getting a new insurance policy can be difficult after having force-placed insurance. And if you don't pay for your force-placed policy, the bank may foreclose on your home.
If you're having trouble finding a company that will sell you home insurance, try calling a local insurance agent. They may have access to smaller insurance companies willing to take on a more risky home.
Some states also have state-sponsored insurance organizations, called insurers of last resort, which offer insurance to people who can't get coverage from a regular company. A local agent can help guide you through the process of applying for state-sponsored insurance, if it's available to you.
Home insurance requirements across states
If you live in certain areas, you may need more than just a basic home insurance policy.
For example, if you live near the coast, your lender may require you to have flood insurance.
Even if it's not required, you may want to have extra protection for your home. For instance, California homeowners may want to consider adding earthquake coverage.
If you live in a very risky area, insurance companies may not cover certain types of damage. People living in Tornado Alley might not have coverage for windstorms as part of their basic policy. So, you'd need separate coverage to ensure you have protection for severe weather in your area.
Is home insurance required in California?
The state of California doesn't require homeowners insurance. However, if you have a mortgage, the bank typically requires you to have a policy.
California homeowners may want or need to get extra coverage to protect against common natural disasters in the state, including earthquakes and wildfires.
Mortgage companies usually require you to have wildfire coverage. So, if your insurance company won't pay for wildfire damage, you may need to buy a separate fire insurance policy.
Homeowners insurance doesn't cover damage caused by earthquakes.
Most mortgage companies don't require Californians to have earthquake insurance. But, if you live near a fault line, you should consider buying an earthquake insurance policy. This is the only way to ensure your home and belongings are protected from damage caused by earth movement or landslides.
Florida homeowners: Insurance requirements for hurricanes and flood risks
If you live in a part of Florida that experiences hurricanes or flooding, your mortgage company might require you to have extra home insurance coverage.
Most basic homeowners insurance policies protect against hurricane damage. But you might have to pay a separate, higher deductible for damage caused by what are called named storms.
However, if you live in a very high-risk area, your insurance company may not cover your home for certain types of damage. For example, it's somewhat common for insurance companies to not cover windstorm damage in coastal areas. In this case, your mortgage lender may require you to buy a separate windstorm policy.
Homeowners insurance doesn't cover flood damage caused by hurricanes, tropical storms or storm surge.
If you live in a moderate or high-risk flood zone, the bank will usually require you to buy a separate flood insurance policy. You can look up your flood zone using your address on the FEMA website.
What types of homeowners insurance coverage do you need in Texas?
Homeowners insurance requirements in Texas vary depending on where in the state you live.
People living near the coast may experience hurricanes and tropical storms. Basic homeowners insurance usually covers these types of damage. But, if you live in a particularly high-risk area, you may need to buy a separate windstorm policy.
Your mortgage company will probably require you to have flood insurance if you live in a moderate to high-risk flood zone. This can affect Texans living near the coast, a lake, a river or even in a low-lying part of your neighborhood.
You can check your home's flood zone on FEMA's website. Regular home insurance doesn't cover weather-related flood damage, so you'll need to buy a separate flood insurance policy.
Texans living near Tornado Alley may need separate windstorm coverage. While basic homeowners insurance normally includes this coverage, some companies may not cover wind damage for homes in high-risk areas.
However, your mortgage lender will typically require you to have coverage for wind damage. Like in hurricane-prone areas, you may need to buy a standalone windstorm policy.
Do you need homeowners insurance for snow and ice damage in the Northeast?
Basic homeowners insurance policies almost always include coverage for damage caused by snow and ice. So, you shouldn't need to pay extra to protect your home against damage caused by winter storms.
However, insurance companies won't cover damage caused by ice or snow if you haven't been taking proper care of your home. For example, say you ignore heavy snow piling up on your roof and don’t clear it away. If the weight of snow causes the roof to collapse, your insurance company may not pay to replace it.
Do Midwest homeowners need special insurance for tornado damage?
Most homeowners insurance policies cover the types of damage caused by a tornado, including wind, hail and lightning. However, if you live in an area with frequent tornadoes, you may have to pay a separate, higher deductible for wind damage.
In very high-risk areas, some insurance companies may not offer coverage for wind damage at all. But, your mortgage lender will still require you to have wind coverage. If you can't find a company that will include wind damage in your regular homeowners insurance policy, you may need to buy a separate windstorm policy.
Should you get homeowners insurance if you don’t have a mortgage?
Yes, even if you don't have a mortgage, home insurance could save you a lot of money if something were to happen to your home.
What happens if you don’t have homeowners insurance?
Without home insurance, you have to pay to repair any damage to your home and belongings yourself. However, if you have a home insurance policy, you could file an insurance claim and get money from the insurance company to help pay for repairs.
Example
Say a tree falls on your roof, and you have to replace the entire roof, which costs $10,000. If you don't have homeowners insurance, you'll have to pay the entire $10,000 bill yourself.
If you have a homeowners insurance policy with a $1,000 deductible, you'll file a claim with the insurance company to cover the damage. Once the insurance company approves your claim, it will pay $9,000 toward the new roof. You'll only pay your $1,000 deductible.
In this situation, having homeowners insurance saves you $9,000 on your new roof.
The average cost of homeowners insurance is $1,450 per year. So a $9,000 savings is definitely worth it.
If you don't want to spend a lot of money on homeowners insurance, there are a few ways you can find a policy for cheap:
Choose a higher deductible. A higher deductible usually results in cheaper rates because you won't get as much money from the insurance company if you file a claim.
For example, a policy with a $2,000 deductible costs an average of $409 less per year than one with a $500 deductible. However, having a high deductible means you may only be able to use your home insurance for major repairs, since you can't submit a claim for a repair that costs less than your deductible.
Bundle your home and auto insurance with the same company. This is typically the largest discount you can earn on your insurance.
You should also shop around to find a company that offers lots of discounts you qualify for. Some companies even offer discounts for not having a mortgage.
Frequently asked questions
Can you get a mortgage without homeowners insurance?
No, you typically can't get a mortgage without having homeowners insurance. If you don't get a homeowners insurance policy or you let your policy lapse, your lender will automatically get you what's called force-placed insurance instead. This type of insurance is much more expensive and doesn't offer you as much coverage. It's a much better idea to buy your own home insurance policy.
Is there a penalty for not having homeowners insurance?
There isn't a specific penalty for not having home insurance. However, if you have a mortgage and don't have insurance, your lender will get you what's called a force-placed policy, which is usually much more expensive. If you don't pay for the force-placed policy, your lender could foreclose on your home.
Can I live without home insurance?
If you don't have a mortgage, you aren't required to buy home insurance. However, it can save you a lot of money if your home is seriously damaged or someone is hurt on your property.
For example, say you have a house fire that causes $10,000 of damage. Without home insurance, you'll have to pay for the repairs yourself. But if you have homeowners insurance, the insurance company will cover most of the costs to fix your home after a fire.
Methodology
To find the average cost of home insurance, ValuePenguin collected quotes for every residential ZIP code in the U.S., from the largest homeowners insurance companies in every state.
Quotes are for a 45-year-old married man with no prior home insurance claims and a good credit score. Rates include the following coverage limits:
- Dwelling coverage: $350,000
- Personal liability coverage: $100,000
- Medical payments: $5,000
- Deductible: $1,000
ValuePenguin's analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurance company filings and should be used for comparative purposes only. Your own quotes will be different.
About the Author
Senior Writer
Lindsay Bishop is a Senior Writer at ValuePenguin, where she educates readers about home, auto, renters, flood and motorcycle insurance.
Lindsay began her career in the insurance and financial industry in 2010. She was a licensed auto, home, life and health insurance agent and held Series 6 and 63 financial licenses.
After a hiatus from the financial sector, Lindsay returned to the industry as a content writer for ValuePenguin in 2021. She enjoys having the opportunity to help readers make smart decisions about their insurance so they can be prepared for anything life throws their way.
When Lindsay isn't writing about insurance, you can find her spending time with family, enjoying the outdoors on Sunday long runs or riding her Peloton.
How insurance helped Lindsay
As a homeowner for 15 years located in South Carolina, Lindsay has plenty of experience navigating the coastal insurance market and managing the claims process. That includes successfully negotiating a full roof replacement claim.
Expertise
- Home insurance
- Car insurance
- Flood insurance
- Renters insurance
- Motorcycle insurance
Referenced by
- CNBC
- Yahoo Finance
- Miami Herald
Education
- BS/BA Economics, University of Nevada Las Vegas
Editorial Note: The content of this article is based on the author's opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.
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