When you get a mortgage, your lender will require you to have proof of homeowners insurance before you closing.Â At minimum, your policy will probably need to equal the amount of your mortgage, which may or may not cover the actual cost to rebuild your house.
Even if you pay off your mortgage, it is important to have homeowners insurance to protect the equity you have built up in your home.
What Does Homeowners Insurance Cover?
Homeowners insurance typically covers the following:
- Losses and damage to your property if something bad happens
- Liability insurance to protect you against lawsuits stemming from accidents that occur on your property
- Some homeownersâ insurance policies may also cover a portion of the cost of replacing personal possessions
Standard policies typically cover damage from disasters such as fire, explosions, lightning and hail. Damage from earthquakes or floods are typically not included; you will need special policies to obtain that coverage.
How Do I Know if I Need Flood Insurance?
If you live in a high-risk flood area, federal regulations may require you to purchase flood insurance in order to obtain a mortgage. However, a lender may also require flood insurance even if it is not federally required. To learn more about flood insurance, visit www.floodsmart.gov.
How Are My Insurance Premiums Paid?
If your lender has purchased homeowners insurance for you, part of your monthly mortgage payment will go into an escrow account and, when the homeowners insurance is due, the lender will use the money in your escrow account to pay the bill.
For more information about mortgage options, visit www.FreedomMortgage.com.