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When do you need to purchase home insurance?

You may think that home insurance is like auto insurance in that the law requires you to have it if you own a home. Though the confusion is understandable, this is actually not the case at all. If you are able to purchase your home outright without taking out a loan, there is no requirement for you to have insurance on your property. 

According to Insurance.com, it is not the government that requires you to have home insurance, it is your mortgage lender. Because most homebuyers must take out a mortgage in order to make the purchase, almost anyone who buys a home must also take out an insurance policy on the property. 

The reason that mortgage lenders require you to obtain an insurance policy is that they assume a financial risk in lending you money to purchase a home. As long as you owe money on your mortgage, the lender still owns a piece of the property and therefore has a lot to lose if a catastrophe should occur that destroys your home. Insuring your home means that the lender can recoup some of the losses in the event of the home's destruction. 

The minimum amount of insurance coverage that you require depends on several different factors. These include standards set by the insurance company, as well as state law. Additional factors include the type of home, its location and applicable building codes. 

The information in this article is not intended as legal advice but provided for educational purposes only.

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