By Amy DeYoung
Updated Dec 15, 2022
Home insurance protects homeowners if a natural disaster, fire, flood, or other event wrecks their home. If you don’t have home insurance or your policy lapses, you could lose your home and belongings when facing one of these terrible disasters.
Homeowners insurance protects your property, house, and personal belongings in the case of sudden physical loss. Many policies also provide coverage for medical bills or replacement costs if you damage someone else’s property or injure someone on your property.
Here are the main types of homeowners insurance coverage:
Home insurance is not legally required. However, most homeowners have it to protect their finances and belongings. Many companies with a financial interest in your home, such as a mortgage lender or home equity loan holder, will require it. This requirement results from lenders wanting to protect their investment in your home, even if it burns down or is damaged by a tornado, hurricane, or other disasters. A company with a financial interest may require flood insurance or earthquake coverage if you live in a high-risk area prone to these disasters.
If you purchase a condo, you may be required to buy home insurance because you’re purchasing a financial stake in a larger entity.
In short, if you don’t have home insurance, you won’t get into legal problems with the government. However, you may default on a mortgage agreement or contract with a third-party mortgage company helping you finance your home.
Here are some of the biggest scenarios that could happen if you don’t have home insurance:
This is an incident that many of us wouldn’t think home insurance would affect. However, most real estate agents will not take you as a client if you don’t have homeowners insurance. If you don’t have homeowners insurance and your home is destroyed during the selling process, your realtor would lose the opportunity for a commission and have no home to sell.
You can sell your own home. However, marketing your home and knowing all the details about how to sell your home while meeting regulatory requirements is multifaceted and best left to professionals.
In the first quarter of 2022, the median home price in the United States was $428,700. If a house fire or natural disaster suddenly destroyed your home, you’d lose the value of your home and be left with hundreds of thousands of dollars in rebuilding costs.
Flood insurance is an undervalued home insurance among homeowners who don’t have waterfront properties. Most homeowners insurance policies don’t cover floods, and only 30% of homes in flood zones have ample coverage. If you live in a flood zone, don’t hesitate to get this additional coverage for your home.
Most of us don’t have this kind of money, so not having home insurance can put you in a precarious situation if you suddenly lose your belongings and home.
If you don’t have home insurance and your home is burglarized or vandalized, you’ll be responsible for replacing all your belongings. Depending on what you own and the size of your home, this can cost many thousands of dollars, an out-of-pocket financial loss many of us would struggle to come back from.
Suppose you have a friend over, and they trip and fall, breaking their leg and racking up substantial medical bills. They could sue you for the cost of those medical bills and more.
Likewise, if your child has a friend over and falls down the stairs or slips on the trampoline in the backyard, the friend’s parents could sue you for neglecting to supervise their child on your property.
Regardless of the incident, a homeowners insurance policy protects you if you’re sued after someone is injured on your property. Liability protection is crucial because all your belongings, home, businesses, and car can be used as leverage in the case of a lawsuit, putting them at risk if you lose.
If you cancel your homeowners insurance policy or the policy lapses, your insurance agency will notify your mortgage lender. If this violates your mortgage agreement, your lender may send your loan into default or force you to purchase a more expensive policy, also known as lender-placed or force-placed insurance. A more expensive, new insurance policy will increase your additional living expenses due to the higher premium, making this an undesirable situation for homeowners.
This event also causes your credit score to take a significant hit and increases your risk of losing your home in foreclosure.
If you’re a homebuyer thinking about skipping purchasing a home insurance policy, think again. If you’re planning on going through with homeownership without home insurance, know that securing financing for your home will be nearly impossible.
The majority of lenders require important documents, including proof of homeowners insurance. Without insurance, your lender will almost always deny you financing.
Many homes with home insurance don’t have enough coverage for their value. When shopping for home insurance for your new home, gather a handful of insurance quotes and speak with an insurance agent about their policy details. Consider the value of your home and personal belongings and if you live in a natural disaster-prone area when choosing between policies and home insurance coverage limits.
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