Do You Have to Have Homeowners Insurance?

There are no legal requirements that a homeowner carry insurance. However, the vast majority of mortgage lenders require that you maintain coverage to obtain a loan. Even after the loan is paid off, having insurance makes sense for most homeowners.

Lender Requirements

Lenders are essentially investors in your home until you pay off your debt. Thus, any lender has a vested interest in you having financial protection against property damage. If your home is destroyed and you aren't insured, you lose your investment in the home and the lender knows it is unlikely you can pay off your debt. As a result, the vice president of the Insurance Information Institute noted in 2013 that 98 percent of homeowners with a mortgage held a home insurance policy. Specific lender expectations vary, but you normally have to purchase enough damage or replacement protection to cover a total loss on the property. The total replacement cost is the amount needed to rebuild your home at present market conditions. This amount often is higher than your purchase price.

People who live in geographic regions prone to earthquakes, floods or other types of natural disasters may face additional requirements to guard against these pitfalls. If you don't find a policy that meets the lender's standards, your loan likely will not be funded.

After Loan Payoff

Lenders no longer have motivation for you to have insurance after you pay off the loan. However, the Insurance Information Institute reported that only 3 percent of Americans didn't have coverage as of April 2013. Thus, most people have insurance even without a mortgage. Exceptions include people with significant cash assets that aren't concerned about covering the costs of losses, and people who can't keep up with insurance premiums. Because of the tremendous financial risks that come without coverage, homeowners usually opt to continuing paying for property, contents and liability benefits after payoff.


Committing application fraud and failing to pay off premiums are common reasons an insurer would cancel a homeowners insurance policy.