Is homeowners insurance required?

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Buying a home is often one of the biggest investments you’ll ever make. To make matters even costlier, you’ll also need to get homeowners insurance.

While homeowners insurance isn’t required by law, it is often required by your mortgage company. However, even if it isn’t required, it is necessary for your financial well-being. Damage to your home caused by accidents or disasters can cost you hundreds of thousands of dollars. If you can’t afford the costs, then you won’t be able to repair your home.

Key Takeaways

Homeowners insurance is not required by law.
If you have a mortgage, your lender likely requires that you maintain a certain amount of homeowners insurance.
Regardless of requirements, home insurance can protect from financial devastation if your home is damaged.
To help you find the right insurance, talk to an insurance agent about what coverage is right for you.

Do you have to get homeowners insurance?

Unlike car insurance, which is required by state law, homeowners insurance is not a state requirement. However, to satisfy the terms of your loan, your mortgage lender will most likely require you to carry a certain amount of home insurance. This is often based on the value of your home and ensures that you will receive financial assistance should you experience a loss.

If you don’t have a mortgage, you may not be required to get homeowners insurance, but it is an enormous risk to go without coverage. If you do not have adequate coverage to protect your home and all of your belongings, you can risk financial devastation and even homelessness.

What does homeowners insurance cover?

Home insurance typically covers several types of protection for your home:

The exterior of your property and other dwellings on the property
The interior of your home and other dwellings on the property
Loss or theft of personal property
Personal liability coverage
Medical costs and legal damages for injuries to guests

What type of homeowners insurance coverage do I need?

Dwelling coverage

The amount of home insurance that you need depends on several factors, but most policies offer three types of dwelling coverage:

Actual cash value
Replacement cost
Extended replacement cost/value

Experts recommend dwelling coverage that is 100% of your replacement cost.

Liability coverage

Even though most standard home insurance includes $100,000 in liability coverage, it’s wise to increase that up to at least $300,000 if possible.

While it is cheaper to purchase minimum coverage, it is important to consider what kind of expenses you would face if you experience a major loss. A slightly higher premium each month could make all the difference if the unthinkable happens.

Be sure to ask your insurance agent about what kind of coverage is best for your home based on factors like where you live, the type of home you have and the value of your belongings.

Personal property coverage

Home insurance usually covers between 50% to 70% of your dwelling coverage as personal property coverage but you can also buy additional protection.

Keep an inventory of your personal property. Make a list and take pictures and videos. Look up replacement costs for the items on your list. This will help you determine the amount of personal property coverage you need.

Medical payments to others

Guest medical payments coverage typically has limits between $1,000 and $5,000. This will help cover medical expenses for guests who are injured on your property, regardless of fault. This coverage can help to avoid larger liability claims resulting from lawsuits.

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How to save money on homeowners insurance

Buying a home is expensive, and adding on homeowners insurance can feel like another added expense. However, there are many ways that you can save money and get an affordable homeowners insurance policy:

Safety discounts: Many companies offer a discount when you have smoke alarms or a security system in your home.
Bundle discounts: If you bundle your home and auto insurance with the same provider, you could save extra savings on both.
Loyalty discounts: You could earn extra savings when you have a prior insurance policy with the same company or use the same provider as a family member.
Increase your deductible: One way to lower your monthly premium cost is to increase your deductible, although this means that you will have to pay more money out of pocket if you experience a loss.
Improve your credit score: While this is a long-term plan, improving your credit score can lead to lower insurance rates.
Avoid unnecessary claims: Claims increase insurance premiums, so avoid small claims that could be handled independently.
Decrease coverage limits: Speak with your insurance agent to ensure you are adequately covered if needed, but consider reducing coverage limits if you have more insurance than is actually needed.

Before you buy your policy, don’t forget to ask your insurance provider what home insurance discounts may apply to your policy.

Lena Borrelli

Contributing Researcher

Lena Borrelli is a freelance writer from sunny Tampa Bay who has worked with such leading industry titans as Gronk Fitness, Morgan Stanley, Wells Fargo and Simon Corporation. Her work has most recently been published on sites like TIME, Microsoft News, Bankrate, Investopedia, Fiscal Tiger, The Simple Dollar, ADT and Home Advisor.