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Do You Need Homeowners Insurance?

Buying a house is one of the largest purchases many people will ever make. Protecting this investment with the right homeowners insurance policy can help cover the costs of expensive repairs when things go wrong. But is it necessary? The answer depends on whether you have a mortgage.

Do Mortgage Lenders Require Homeowners Insurance?

Mortgage lenders generally require homeowners to maintain insurance as part of the loan agreement. This is because, as long as you have a mortgage, your lender has a financial interest in your property. Homeowners insurance not only protects you but also ensures that you can make necessary repairs or rebuild, thus continuing to repay your mortgage.

How Much Home Insurance Do Mortgage Lenders Require?

Lenders typically require homeowners to have insurance policies that cover 80% to 100% of the cost to rebuild the home. This cost is not the same as the market value, as rebuilding costs may be more or less than the market value.

Risks of Not Having Homeowners Insurance

Although the law may not require you to have homeowners insurance, skipping it could be a mistake. Without adequate coverage, you face several risks:

• Financial burden: Without insurance, the financial responsibility for repairing and replacing damaged items falls to you.
• Inability to make repairs: If you don’t have the financial resources available, you may be unable to make repairs.
• Force-placed insurance: The lender can purchase coverage for the property that you must pay for if you don’t buy insurance on your own. These policies typically provide bare-bones coverage and cost much more than a traditional policy.
• Loan default: If you don’t have insurance, you’re likely violating your loan agreement. Your lender can send your loan into default, which could result in foreclosure.
• No liability protection: Homeowners insurance helps protect you from lawsuits if someone gets hurt on your property. Without it, you could be on the hook for legal costs and damages.

What Does Homeowners Insurance Cover?

Homeowners insurance typically provides protection from various perils such as fire, theft, vandalism, wind, and more. It generally includes the following types of protection:

• Structure: Pays to repair or replace your home and other structures on your property.
• Contents: Pays to repair or replace items within your home, such as furniture, electronics, and clothing.
• Liability: Helps pay for the cost of defending yourself in a lawsuit, plus any damages that may be awarded.
• Additional living expenses: Covers additional living expenses if you cannot stay in your home while it’s being repaired.

It’s crucial to read your policy carefully to know what’s covered and what isn’t. If you have questions, talk to your agent or insurance company directly.

How to Save on Homeowners Insurance

The cost of homeowners insurance is on the rise. Here are seven tips to help you save:

• Bundle home and auto policies: Many insurance companies offer discounts for purchasing both from the same provider.
• Shop around: Compare quotes from multiple insurers to get the lowest price possible.
• Prioritize safety: You may pay less for coverage if your home has deadbolt locks, smoke detectors, or a security system.
• Improve your credit: Higher credit scores typically qualify for lower rates.
• Cover minor repairs yourself: Paying for small repairs out of pocket can prevent your insurer from raising your rates.
• Increase your deductible: A higher deductible results in a lower premium but means paying more upfront if you have to make a claim.
• Ask about discounts: Some insurance companies offer discounts for retirees or for signing up for services such as autopay or paperless billing.

Protect Your Property

If your lender requires you to maintain homeowners insurance, you get to choose the policy you purchase. Skimping on coverage to save money may sound like a good idea, but it could cost you later on. A better option is to buy the most comprehensive policy you can afford while looking for ways to save on your premium.

If you’re lucky enough to own your home outright, you could skip the coverage—but it’s not a good idea. Remember, homeowners insurance doesn’t just protect your lender. It protects you, too. Without it, you’ll be on the hook for out-of-pocket expenses if disaster strikes.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you find the best solutions for your home financing needs.

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