You cannot drive a car without automotive insurance; it is a legal requirement. But what about owning a home? Do you need to insure that? For many new homebuyers, the topic of homeowner’s insurance is a confusing one. You may wonder whether homeowner’s insurance is a legal requirement. You may also wonder what it is needed for and whether it is important. Let’s answer some of the most frequent questions about homeowner’s insurance now.
Q: Am I legally required to purchase homeowner’s insurance?
A: Technically, no. There is no legal mandate that you buy homeowner’s insurance. In this sense, owning a home is very different from owning a car. This makes sense when you think about it. You need to buy automotive insurance to protect other drivers and pedestrians on the road, not just yourself. That is not applicable when it comes to owning and living in a home.
Q: Can my lender force me to buy homeowner’s insurance?
A: Yes. A lender can refuse to provide you with financing if you do not agree to buy homeowner’s insurance. Again, this makes sense when you think about the reasons. When you purchase a home with a mortgage, you do not yet own the entire home. If the house burns down before you can pay it off, other parties lose money. If, however you have homeowner’s insurance, that provides financial protection.
Q: Do you still need homeowner’s insurance after you finish paying off the house?
A: No. At that point, there is no third party invested in your home. So, it is up to you. Of course, the home is your investment by that point, so protecting it for your own sake makes sense.
Q: Are there several types of homeowner’s insurance?
A: Yes, there are. There is a basic type of homeowner’s insurance policy which protects your home from fire, smoke, weather damage, vandalism, theft, and so on. There are also “broad form” and “comprehensive” policies which provide an even larger umbrella of protection.
You may find specific types of policies for specific types of buildings, like condominiums and mobile homes. There may be special policies for older homes as well. And in some cases, you may need to purchase separate flood insurance or earthquake insurance.
Q: Why is homeowner’s insurance important?
A: By this point, you probably can answer this question yourself. You are putting a lot of money into purchasing a home, and it is an investment which may very well shape the course of the rest of your lifetime. That is something well worth protecting. That is also true for your possessions, which may have both financial and sentimental value.
So even if you are not required by your lender to purchase homeowner’s insurance, and even though it is not a legal mandate, you should still strongly consider buying it. Even after your home is paid off, it is a clever idea to continue to safeguard it along with your valuables.
Now you know a little bit more about homeowner’s insurance policies—just one of the many costs you will need to consider when you are buying a home. Even though it is an added monthly expense, it is a smart purchase, and one which may very well pay for itself many times over in the future. Hopefully you will never need to call upon your policy, but if that day ever does arrive, you will be glad your home is protected.