Mortgage lenders will typically require that you have homeowners insurance in order to lend from them. They make it mandatory to protect their investment. However, if you paid up-front for your home, you most likely don’t have homeowners insurance.
It might also be possible to no longer be legally obligated to keep a policy after it lapses. It might seem tempting not to have to pay premiums anymore. But when you consider your risks with the costs of, let’s say, a fire that destroys your home, it’s not worth it. If something happens to your home and you aren’t’ covered with a homeowners insurance policy, the cost of repair or replacement comes out of your pockets. Let’s look more in-depth into what happens if you don’t have homeowners insurance.
Is Homeowners Insurance Required?
Legally speaking, homeowners insurance is not required. This is something that people find surprising as car insurance is required by law. But mortgage lenders will require that you at least obtain a basic homeowners insurance policy. If your home is damaged by a tornado or another disaster, a homeowners insurance policy protects them from financial loss.
Other policies such as flood insurance and earthquake coverage might also be required, depending on where the home is located. Condominiums and co-ops also typically require that you purchase homeowners insurance. This is primarily because if an accident or catastrophe occurs, the entire complex is at risk, and hence, it can financially impact everyone who lives there.
Risks & Liabilities Of Not Having Homeowners Insurance
A standard homeowners policy provides coverage for the structure, your belongings, and liability protection from property damage or injury lawsuits. Homes are usually the biggest asset that a person will own in their lifetime. When you no longer have a homeowners insurance policy, you are removing that financial protection.
Costs From Damage To Property & Belongings
With your property no longer covered, you are responsible for repairing and replacing your property if it is damaged. Fire, hail, windstorm, and vandalism are among the perils that you no longer have protection from. If your home catches fire due to a faulty appliance, burning down your home, all the associated costs are your burden. That means you would have to pay the thousands or hundreds of thousands of dollars it may take to rebuild your home. The expense for a temporary home, while yours is being re-built, is also your responsibility.
Our homes are where we keep most of our personal property like laptops, tablets, jewelry, collectibles, etc. Homeowners insurance protects not only your property but all your “stuff” from theft, damage, or loss. If you were to go on vacation and your home was broken into, and thieves ran off with your valuables, it would be more than a financial loss. At least with protection from a homeowners policy, it would soften the blow of losing your valuables by having the money to replace it.
Responsibility For Third Party Injuries
Litigation is an all too common occurrence in today’s society. The risk of liability as a homeowner is unique. If someone is injured while they are visiting your home or their property is damaged, you could be held responsible.
Even the injuries sustained by a trespasser could shift responsibility to the homeowner. Medical bills, rehabilitation expenses, and legal defenses are heavy financial burdens to be exposed to if an injured party takes you to court for negligence. Home insurance protects you from these types of lawsuits through a type of coverage called personal liability.
Defaulting On Mortgage
Mortgage lenders will require that you have a certain level of coverage through a homeowners’ insurance policy to receive a mortgage loan. Their expectation is that the policy lasts as long as the mortgage loan. In fact, this is part of the terms that you agree to in the mortgage agreement.
Canceling your policy or allowing it to lapse will result in your lender being notified. This brings with it the possibility of risk from defaulting on your mortgage loan. The lender could foreclose on your home as a result. A foreclosure on your credit report will negatively affect your credit score. It could affect your ability to take out other loans and credit cards, or it can show up on a background check for a new job.
Otherwise, your lender may purchase insurance and charge it to your mortgage payment. “Lender-placed” or “force-placed insurance” is what home insurance plans are called that are purchased by a lender. This is not ideal as this new issuance policy often costs multiple times more than a traditional homeowners insurance plan. The terms are also less favorable and may not include items such as loss of your personal belongings since those losses don’t affect the lender.
Reach Out To A Professional Homeowners Insurance Agency
A home is where the heart is, and protecting the heart is important. Don’t let an unfortunate event prevent you from loving your home. Shield your home, and your family, with a homeowners insurance policy. The experienced team of insurance agents at Merchant Family Agency is here to provide the utmost protection to your humble abode and give you peace of mind. Merchant Family Agency cares about protecting the things that matter to you. Contact our supportive local team for help finding the insurance plan so that your future is covered.