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Why is my lender forcing me to purchase home insurance?

Lender & Home InsuranceAs a home owner it is your responsibility to financially protect your asset and, if your home is being mortgaged, your lender will force you to purchase home insurance.

All lenders require home insurance because of the investment they are making in your home.

Home ownership comes with a wide array of potential disasters, from storms and accidents to fires and vandals. Since your lender has so much at stake in your home it is understandable that he wants to be sure his investment is secure.

Read on to learn all about why a home lender will require homeowners insurance coverage for as long as there is a loan on the house and then make sure that you enter your zip code above to compare free insurance quotes!

What Home Insurance Offers

Home insurance protects your house, your property, your personal belongings, and even offers personal liability defense. There are different levels of home insurance that cover different scopes of incidents with varying ranges in premiums. At the very basic level you need catastrophic coverage such as fire protection. Most home insurance coverage is usually extended to external structures, such as a detached garage, as well as to the house itself. Even landscaping can be covered by home insurance.

Imagine water damage incurred from broken pipes or roof damage sustained from trees falling during a storm. What if you accidentally leave the kitchen sink plugged up and the water running? There is also the misfortune of vandals damaging your home or robbers stealing your personal property. Without home insurance these losses would be your responsibility to financially replace.

Personal liability is usually included with all home insurance policies, which is necessary for potential injury that could occur to a non resident while on your property. If a guest falls down your stairs or trips on the sidewalk in front of your house you could be held personally liable for any resulting injuries. Home insurance can protect virtually every aspect of your home, including your house, your belongings, and your assets under certain lawsuits.

Homeowners Insurance Coverage Required by Lenders

When you mortgage your home through a lender you are required to have home insurance. This is because the lender holds the majority of the financial investment in your home. For example, if you buy a $200,000 home and you mortgage $180,000 of it, then the lender has at least $180,000 invested in your home.

Your lender forces you to purchase home insurance so that there is financial protection to cover any damages that may occur to your home. If a fire destroys your house and you do not have any home insurance, then you and your lender will be at a complete financial loss of the investment.

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Determining the Value that Lenders Require for Home Insurance

At the time you mortgage your house you will most likely be required to have a real estate appraisal that will take a variety of factors into consideration on determining the value of the home. In addition to the actual structure of the house, your home insurance has to cover your personal possessions. If you have luxuries in the home, such as valuable coin collections or jewelry, then you can purchase additional insurance for these items.

If you are ever displaced due to damage to your home, such as waiting for your home to be rebuilt from a fire, then your insurance should cover your living expenses while you are out of your home. Living expenses can apply to a hotel stay, an apartment rental, or a house rental. Also, as discussed above in “What Home Insurance Offers” most home insurance includes liability, which is part of the cost of the premium.

There are many calculators available that can help you determine how much home insurance you need to purchase in order to cover the cost of your structures. Basically you need to determine the square footage of your home and multiply that by the costs of construction per square foot. This number will vary based on average construction costs for your neighborhood.

For your personal possessions it is helpful to make a list of essential items and items of value that may need to be replaced in various circumstances. It is also beneficial to take photographs of your items and keep them in a waterproof and fireproof safe. The waterproof safe is extra important because many times documents that survive a fire in a fireproof safe do not survive the water that is used to extinguish the fire. As you add or replace personal property, log it accordingly.

On an annual basis it is a good idea to review your home’s value with your agent. Changes in the neighborhood as well as any home improvements you make can cause necessary alterations to your home insurance. Your lender requires you to carry enough insurance to cover his investment, but you also need to carry enough insurance to cover your investment as well.

To request home insurance quotes now from the convenience of your home, simply enter your zip code to get started!

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