Around 93% of homeowners have homeowners insurance policies, leaving just 7% without them. But why do so many homeowners purchase this insurance type?

You might assume that homeowners are legally required to have home insurance policies. While this is partially true, it’s not true 100% of the time. Home insurance is a vital policy to have, but it is only sometimes required. 

Are you interested in learning how this works? Then keep reading this guide to learn more.

Basics of Homeowners Insurance

In the first quarter of 2022, the average cost of a home was $428,700. Of course, some homes cost much more than this amount. In any case, buying a home is a big investment that requires money down. You might save your money for five years or more to have enough for your down payment. Therefore, you’ll want to protect this investment. One way to protect it is by purchasing the best homeowners insurance policy. 

Homeowners insurance covers several vital things:

• First, it covers the home structure. If a covered peril damages your structure, your insurance plan compensates you for this damage.
• Secondly, it covers your belongings, such as your clothing and furniture. If a covered peril damages your belongings, you can file a compensation claim. 
• Finally, homeowners insurance protects you from injuries that occur to people who visit your home. This part of the plan is called liability insurance coverage. 

Most typical home insurance policies cover several types of perils. These generally include fire, wind, hail, and water damage. If you experience these perils, you’ll have the protection you need. 

Why It’s Required in Most Cases

First, it’s vital to know that there is no legal requirement for homeowners relating to home insurance. But you might still ask, “do I need homeowners insurance?” The answer is yes if you have a mortgage. While you’re not legally required to purchase a policy, your lender requires it. 

Lenders have a massive stake in home loans. In many cases, financial institutions pay for 80% of a home’s value or more by issuing loans to borrowers. As a result, lenders need protection, and they get this protection in several ways. First, they screen applicants and only approve loans to people who appear creditworthy.

Secondly, they require homeowners insurance during the loans. This requirement aims to ensure that lenders receive the money borrowers owe, even if borrowers lose their homes to extreme perils. For example, suppose a person owes $300,000 on their home when it burns down. If this person didn’t have insurance, they probably wouldn’t repay this money, leaving the lender out of the money.

However, if the lender requires home insurance, they’ll receive their money when the insurance company settles the claim. 

If you’re currently buying a home with a loan, your lender will tell you to buy a home insurance plan. You must have proof of coverage when you attend your mortgage closing appointment. The lender will not issue the loan if you don’t have insurance coverage at your mortgage closing. 

Times It Isn’t Required

So if lenders require homeowners insurance for borrowers, you might wonder if you need it if you don’t have a loan. The answer is no. You will only have someone dictating this requirement if you have a loan.

Therefore, you can drop your homeowners insurance policy if you meet either of the following:

• You pay cash for a house
• Pay off your loan
• At this point, the house is yours, and you won’t have to keep a home insurance policy. So when you own a house free and clear, you no longer have to follow this requirement. 

Why You Should Buy It Even if It’s Not Required 

Suppose you’re ready to buy a house with cash right now. You’ll face the decision: should you buy homeowners insurance or not? So what should you do?

The primary thing to consider is your house’s value to you. For example, if a fire destroyed your house and you lost the entire thing, would this harm you financially? The answer is likely yes. Most people would face steep financial consequences if they lost their homes. After all, homes are worth a lot of money.

So the decision is simple. If you own a house, you should have homeowners insurance. It doesn’t matter if you owe 100% of the home’s value or 0%. Having home insurance is your only protection. 

How to Find the Best Policy

The final thing to consider is how to find the best homeowners insurance policy. What should you look for in a plan? Here is a breakdown of the vital things to research before choosing a plan:

Reputable Company

First, you need the right insurance company. Finding a reputable company is the first thing to do. You can read reviews and talk to people to find out what insurance companies to consider. 

Replacement Value

Secondly, your policy should include replacement coverage value. If you lose your home, it might cost more to rebuild it than its current value. Having replacement value gives you the coverage you need. 

Other Coverages

Additionally, you’ll have other insurance options when buying a home insurance plan. You must make sure your policy gives you all the protection you need.

For example, you might need extra coverage for your jewelry collection. You might also want extra coverage for sewer problems. You can typically add extra coverage to a plan, but the options vary by company.

Learn More About Home Insurance 

If you’re buying a house with a loan, you must purchase homeowners insurance. However, if you’re paying cash for a house, buying home insurance is still a vital step.

Are you interested in learning more about home insurance or getting a quote? Contact us at Central Jersey Insurance Associates. You can reach us by calling 732-383-7158 or check out our website for more information.