Real Estate

Am I Required to Have Homeowners' Insurance?

By Ilona Bray, J.D., University of Washington Law School
Understanding what's actually required versus what's necessary when purchasing insurance for your home and property.

The question of whether you are required to obtain insurance to cover damage to your home and property raises three possibilities: whether the law requires it, whether your mortgage lender requires it, and whether common sense requires it.

Does Any Law Require a Homeowner to Carry Insurance?

This is the easy one: No, it would be exceedingly uncommon to find yourself in a jurisdiction where the law requires you to carry homeowners' insurance.

The closest requirement would be the internal governing rules of your homeowners' association, if you live in a planned community. These may require the community association board to buy insurance, paid for partly from your dues; and the rules may separately require homeowners to buy insurance for what remains uncovered, in particular for personal liability.

Will a Mortgage Lender Require a Homeowner to Carry Insurance?

If you use your home as collateral or security for a mortgage, home equity or other type of loan, your lender will certainly require coverage. In fact, mortgage lenders become quite specific their requirements regarding the home's condition; they do, after all, need to count on being able to sell it for enough money to cover your outstanding debt on it in the event that you default and the home goes into foreclosure.

The lender might, for instance, require that certain repairs be made before the home sale closes (in particular, for health and safety purposes) or that you limit your deductible to a certain maximum amount. Also, if you put less than 20% down, the lender is likely to require you to prepay a portion of your annual insurance premium into an escrow account (to make sure you haven't run out of money by the time the bill comes due).

Does Common Sense Require a Homeowner to Carry Insurance?

It's a truism to say that your home is one of your largest assets, but one event, such as a fire, act of vandalism, or flood can make it uninhabitable, with repair bills that may dwarf your bank account.

Unless you have massive cash reserves or are willing to walk away from your home, it's a good idea to maintain homeowners' insurance coverage even if your lender doesn't require it. Also important is the personal liability part of a standard homeowners' policy. This would cover expenses such as medical bills in the event that someone is injured on your property; an expensive risk to bear without insurance.

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