Is Homeowners Insurance Required, and What Does It Cover?

Buying a house comes with some important requirements, from proof of income to money for closing costs. But is homeowners insurance required, or is that something you can skip for now? The answer is that it depends. If you’re getting a home loan—which is what most buyers do—you’ll need homeowners insurance coverage for sure. Otherwise, if you don’t need a loan, you might have a choice in this matter. Here’s what to know before you determine if you need homeowners insurance—and why you should get it even if you’re not required to.

Is Homeowners Insurance Required By Law?

So, is homeowners insurance required according to the law? No, it’s not. Like many other types of insurance—such as life insurance—you are not legally required to get a policy in order to own a home. However, if you’re planning to get a home loan, then yes, your lender will typically require homeowners insurance.

Why is that? Well, this type of coverage provides the lender with financial protection in case your house is damaged or destroyed. After all, the lender technically owns the house until you pay off the loan, so requiring homeowners insurance coverage is just a wise way of protecting their asset. Otherwise, there’s a chance a homeowner could simply stop paying on the home if they can’t live there after a disaster destroys it—since who can afford to pay for both a damaged house and a new house to live in? So it makes financial sense for lenders to require homeowners insurance.

Of course, this type of insurance also protects you and your investment. So while you could avoid getting homeowners insurance by paying for a house in cash upfront—assuming you have money coming out your ears—it’s highly recommended that you get a policy from an insurance company anyway.

What Does Standard Homeowners Insurance Cover?

The reason homeowners insurance is considered so important is that it covers losses of so many kinds. Not only is your house and the land around it well protected by your policy, but so are your belongings. More specifically, here’s the kind of coverage you can expect from a standard policy.

Dwelling Coverage

One of the most important types of coverage pays to rebuild or repair the actual structure you live in so you’re not left essentially homeless after a disaster. Dwelling coverage always covers the cost to rebuild your home if it sustains damage from unforeseen events like fire, hurricanes, strong winds, hail, vandalism, and more.

Of course, check your policy to see which events are covered specifically, as you might have to purchase extra coverage for certain disasters. For instance, if you’re in a flood zone, you might have to buy flood insurance to pay for repairs after water damage. Similarly, if your area gets earthquakes, you might need extra coverage for this type of disaster.

Personal Property

This coverage pays to replace or fix your personal belongings if they’re stolen or destroyed due to a covered event. This means if your clothing, furniture, jewelry, electronics, and other possessions are damaged or destroyed due to water, fire, theft, or vandalism, you won’t have to pay to replace them.

Just keep in mind that there are usually coverage limits for personal belongings. So if you have a lot of expensive items, you might want to pay for additional coverage to ensure you get reimbursed enough money to repair or replace them.


Another important coverage you get with homeowners insurance is liability coverage. Much like the liability portion of auto insurance, this part of your policy protects you financially and legally when you cause injury or loss to someone else.

For example, if someone is injured on your property, liability coverage will pay for their medical bills. It will also pay for your legal bills if you’re sued as a result of the injury. And if someone in your household—including a pet or child—damages someone else’s property, liability coverage will pay for the repairs. This can save you thousands of dollars in legal, medical, and repair expenses, so this coverage is worth the insurance cost!

Additional Living Expenses

What happens when your home is damaged or completely destroyed by fire and you have homeowners insurance? Sure, you can expect the repairs or replacement to be covered, but what do you do while the house is being repaired or rebuilt?

The answer is that you’ll likely stay in a hotel or short-term rental home, which comes with additional living expenses. For instance, when you stay in a hotel, you’ll not only have to pay for your stay every night, but you’ll likely have to pay for laundry services and restaurant food, too. These are expenses you didn’t necessarily have in your own home, so they can be hard to suddenly cover after a fire or other disaster.

The good news is that your insurance company has a solution for you through additional living expenses coverage. This will pay for the extra costs you might have due to a temporary living situation while you wait to move back into your home. And if you were renting out a room in your house—and you now can’t collect that money as your home is being repaired or rebuilt—this coverage can compensate you for the lost rental income. Clearly, this coverage may be a lifesaver for many homeowners whose lives are interrupted due to a disaster!

What Types of Homeowners Insurance Are Required?

There are a few types of homeowners insurance that you’ll need to know about as you search for a policy. Each level offers a different amount of financial coverage, so your mortgage lender will let you know which one is required.

One type of homeowner insurance is actual cash value (ACV). This homeowners insurance covers the cost of the house, as well as the cost to replace your personal belongings, after taking depreciation into account. So if you need repairs or replacements for your home, your policy will pay the amount that everything is currently worth, not what you paid originally.

Another type of coverage is the replacement cost value (RCV), which pays the actual cash value without the depreciation deduction. This means you would get enough money to fix or build your house up to its original value, without losing money due to depreciation.

Finally, there’s an extended replacement cost policy. This is the most comprehensive type of homeowners insurance, as it will pay as much as you need to rebuild or fix your house. That’s the case even if you need more money than your coverage limit total, since you can typically go about 20% over if necessary.

While you can usually choose your coverage level, the average mortgage lender prefers the replacement cost value, not actual cash value. This will allow you to get a check that’s enough to pay for current prices of building materials and labor, ensuring that you don’t have to pay much or anything out of pocket to complete the job.

So, is homeowners insurance required? For most people buying a house with the help of a home loan, yes. You’re going to need proof of a policy by closing day. Fortunately, there is plenty of help available if you don’t know where to start when it comes to choosing a homeowners insurance policy. For example, your real estate agent can guide you in the right direction. If you don’t have one yet and you’re ready to become a homeowner, contact LemonBrew today to get matched with a Partner Agent who can help you through everything from choosing an insurance policy to completing all real estate transactions safely!

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