When you analyze all of the costs of homeownership, the primary expenses that stand out are the mortgage payment, the property taxes, and the homeowners’ insurance. While the first two expenses are understandably required costs of ownership, you may be wondering if homeowners’ insurance is mandatory. You may be hard-pressed to find a real estate lender that does not have a property insurance requirement. A closer look at requirements and why they are in place can help you to decide how to proceed when purchasing Greenville homeowners’ insurance.
The Minimum Insurance Required
Lenders may have different property insurance requirements in some cases, but you will find that all require building coverage. Building insurance provides you with financial benefits in the event your property is damaged by a fire, weather events, theft, vandalism and other related types of events. However, a standard building insurance policy does not cover losses related to mold growth, floods, earthquakes, and other perils. Be aware that you may be able to buy coverage for these additional perils as riders or special additions. In some cases, the lender may also require these additional coverages. For example, if the home is located in an area that has seismic activity, earthquake coverage may be required.
Why Home Insurance Is Required
At first glance, it may not make sense that a lender would require you to insure something that you own. However, keep in mind that the lender’s collateral for the mortgage is the home. The land is not typically insured by a homeowners’ insurance policy because any perils can never destroy the land. Even if the home is destroyed, the land will remain. If the home is damaged and you are unable to afford to repair or replace it, the value of the lender’s collateral is reduced or completely lost. The lender requires building insurance to protect its collateral. If you do not maintain coverage based on the lender’s requirements, the lender may purchase a policy for you and pass this expense onto you.
The Benefits of Home Insurance
As soon as your mortgage is paid off, homeowners’ insurance becomes optional. However, it makes sense to maintain building insurance and even to purchase optional coverage for your property. You may lose a substantial amount of money if your property is damaged or destroyed without coverage in place. Optional coverage may include benefits for personal property losses. This includes replacements if your furnishings, appliances, clothing and other items are damaged or stolen. There are many instances when you may experience losses related to insurable events. Because these losses can be expensive and even financially devastating at times, it makes sense to purchase coverage to protect yourself.
Home insurance is mandatory if you have a home loan. In addition to being required, it also offers real benefits to you. With this in mind, it makes sense to consider buying optional coverage and maintain coverage even when it is no longer a firm requirement for you.
