Why Do I Need To Have Homeowners Insurance?
Unlike auto insurance, homeowners insurance isn’t required by law. But let’s be clear: that doesn’t mean it’s ever a good idea to go without.
Why is having a solid homeowners insurance policy always a good idea? The bottom line is that it gives you invaluable peace of mind. That said, there are a few other important reasons homeowners should never consider homeowners insurance optional. Below, Covered explains why.
Reason #1: Because Your Lender Requires It
Any time a third party has a financial interest in your home, you’re likely going to be required to maintain homeowners insurance coverage. If you have a home equity loan or a home equity line of credit (HELOC), your bank will require it. If you have a mortgage, your bank or mortgage lender will require it. If you live in an area where floods, earthquakes, or other catastrophic events are common, they may require additional insurance covering those hazards.
This is how lenders protect their investment in your home. Your home is your collateral, so they need to make sure nothing compromises your home’s value.
With a mortgage in particular, your lender can take possession of your home for nonpayment — the dreaded foreclosure. By requiring you to maintain certain levels of coverage, they’re ensuring your home won’t suddenly be worth little or nothing to them due to a catastrophic event.
Fortunately, playing by your lender’s rules comes with benefits. For example:
You get to pick your insurance company and policy. That means you can compare coverages, premiums, and customer reviews so that you can buy the policy that’s right for you.
You can have your premiums paid by your lender out of your escrow account. Most homebuyers set up an escrow account to cover both insurance and property tax costs. Your lender assumes responsibility for handling payments. Lenders often prefer this option because they know your premiums are being paid.
Reason #2: Because You Don’t Want an Expensive Policy Forced Upon You
If you have a mortgage and your homeowners insurance coverage is insufficient, lapsed, or cancelled, your mortgage lender has the right to force coverage. That means they buy a homeowners policy for you, and you’re responsible for paying the premiums. It also means you don’t get a say in what that policy does and doesn’t cover.
Let’s be clear: You really don’t want forced coverage (also called “force-placed insurance” or “lender-placed insurance”). Here’s why:
It’s expensive. Lender-placed insurance premiums are always higher than the premiums you would’ve paid for a policy you chose.
It’s not necessarily focused on your best interests. Forced coverage policies aren’t designed to be a good deal for you. They’re designed to be a good deal for your lenders.
Typically, the policies offer only limited coverage. Force-placed insurance generally doesn’t cover owner liability or the value of your personal items.
You could lose your home for nonpayment. If you don’t pay the lender-placed premiums, your lender can foreclose on your home.
That’s why the looming specter of force-placed insurance is yet another reason to ensure you’ve got the right coverage levels in the right areas. For example, if you live in an area prone to flooding, why not choose a flood insurance policy that genuinely works for you? You know, rather than ending up with a crazy-expensive flood policy that works much better for your lender.
Finally, if you do get saddled with forced-placed insurance, PAY IT. If you believe your lender is at fault and that your original policy should be reinstated, you may be able to dispute it. But you’ve still got to pay those premiums until you get things ironed out.
Reason #3: Because You’re Smart (Right?)
If you’re like most of us, buying a home is one of the biggest investments you’ll ever make. In addition, you’ve probably expended a great deal of money, time, and effort to make it a home you genuinely love. Why wouldn’t you choose to protect that investment?
If you don’t maintain homeowners insurance, you may be unable to repair or rebuild your home in the event it’s damaged or lost. Repairing or rebuilding will mean significant out-of-pocket costs for you. If your home experiences catastrophic damage, you could be putting your entire financial future at risk.
That said, once all mortgages, home equity loans, and HELOCs are paid off, some homeowners may choose to update their coverages to reduce their premiums. For example, a mortgage-free homeowner may choose to go with a higher-deductible policy. Though it means they need to be prepared to cover all out-of-pocket costs required to meet that higher deductible on any claims, they’re covered if a catastrophic event occurs.
Keep Covered, and Keep Your Investment Safe and Secure
The Covered team recommends you always maintain adequate homeowners insurance coverage — whether or not it’s officially “required.” It’s simply a smart way to protect your investment in your home.
As a homeowner, you want to feel not only that you’ve made a good investment, but that you’re doing the right things to protect it. You want to know your home and personal property are covered in the event of damage or loss, and that you’re protected from liability. And isn’t that kind of peace of mind absolutely worth the price of those premiums?
Covered can help you make sure you’ve got the right coverages in all the right places, keeping both you and your lenders feeling safe and secure. Request an easy online quote or speak with one of our agents today.