Home Insurance and Your Mortgage: What Lenders Require

If you have a mortgage, your lender almost always requires you to carry home insurance. Here's why, and what that typically means for your policy.

Why lenders require coverage

Your home is collateral for the loan. Lenders require insurance to protect their financial interest in the property in case of fire, storm damage, or other covered losses.

Minimum coverage requirements

Most lenders require dwelling coverage that's at least equal to the loan balance, though some require coverage equal to the full replacement cost of the home. Your loan documents or lender can confirm the exact requirement.

What happens if your policy lapses

If your home insurance lapses, most mortgage agreements allow the lender to purchase "force-placed" insurance on your behalf, which is often more expensive and provides less coverage than a policy you choose yourself.

Escrow and your premium

Many homeowners pay their insurance premium through an escrow account managed by their lender, spreading the cost across monthly mortgage payments rather than paying it in one lump sum.

Once your mortgage is paid off

Home insurance is still strongly recommended even after your mortgage is paid off. It's no longer required by a lender, but the risk to your home and finances hasn't changed.