Is Home Insurance Required by Law?
- Home insurance isn’t required by U.S. or state law, but mortgage lenders will demand you have it.
- Home insurance is worth having for your financial protection, even if it’s not required.
- If you make a low down payment, you may also need mortgage insurance, which is different from home insurance.
Do I have to have home insurance?
If you financed your home, your lender will require you to have a homeowners insurance policy.
There’s no state or federal law that makes you carry home insurance, but mortgage brokers demand homeowners have a policy to protect their investment in case the home is damaged or destroyed.
You’ll at least need a policy in place by the time you close on the house, but it may be earlier than that. Your lender will let you know.
Some lenders may let you get a cheaper bare-bones homeowners policy — just the part known as “hazard insurance,” without the other parts insuring your personal possessions or liability for accidents on your property.
But even if you own your home completely and aren’t required to have home insurance, that doesn’t mean you don’t need it. The cost of a home insurance policy is very low compared to what you’ll pay out of pocket if you don’t have coverage.
In the latest Treasury data from 2022, the average U.S. home insurance claim was $17,696 — with many running a lot more than that. Meanwhile, the average rate for home insurance is just $2,801 a year.
Home insurance vs. mortgage insurance
Mortgage insurance may be required as part of your lending agreement, but it has nothing to do with home insurance coverage.
Also called “private mortgage insurance” (PMI), it protects your lender financially if you can’t make your mortgage payment. You’re usually required to get mortgage insurance if your down payment is less than 20%.
If you are required to carry mortgage insurance, it will be part of your monthly payment to your lender or else paid at closing on the house.
How much homeowners insurance do I need?
Your mortgage company will require you to have insurance coverage for your dwelling that’s at least equal to your loan amount, minus your down payment.
For example, if you bought a home for $400,000 and made an $80,000 down payment, you would have to have a home insurance policy with at least $320,000 in dwelling coverage.
At very least, your homeowners policy will need to have “hazard insurance,” which covers the physical structure of your home for everything from floods and fire to frozen pipes and rioting.
But your lender may also want your policy to include other coverages. These include:
Contents coverage
Contents coverage protects your belongings, such as clothing, furniture and electronics. You should have enough contents coverage in your policy to pay for the complete replacement of your belongings.
Consider making a home inventory list with descriptions of the things you want covered and their price. This can also speed up the process if you need to make a claim.
Liability coverage
Liability coverage helps pay medical expenses if someone is injured on your property and you’re responsible. It also covers your legal expenses if you have to go to court for the injuries.
Home insurance policies usually have a minimum limit of $100,000. This may seem like a lot, but a long hospital stay or legal case could hit that limit quickly, so you may want to increase your liability coverage to at least $300,000.
Medical payments coverage
Medical payments coverage also handles expenses after an injury at your home — including hospital bills and lost wages — regardless of who is at fault. The usual limit for medical payments coverage is $1,000, but it may go up to $5,000.
How do I get homeowners insurance?
A great way to get a home insurance policy is to compare home insurance quotes from several different companies online. You can check out our list of affordable home insurance options as well as contact your own bank or credit union.
Try to use the same coverage limits for each quote to make sure you’re getting an accurate comparison. Also, be sure to see which home insurance discounts you qualify for, since those can lower the price a lot.
Frequently asked questions
Home insurance is not mandatory in the USA, and none of the states require homeowners insurance, so it’s legally OK not to have it. But if you have a home loan, your lender will require home insurance — and even if you don’t, you should get a policy anyway for your own financial protection.
Almost all lenders will require you to have home insurance until your mortgage is paid off. After that, they can’t tell you what to do, but you should still keep your homeowners insurance in order to protect yourself from financial ruin if a disaster strikes.