Is homeowners insurance required by law?

“Homeowners insurance is not required by law,” says Marlen Brito, Personal Lines Account Manager at World Insurance Associates LLC in Worcester, Massachusetts. 

This is true in every state- there are no laws on the books forcing you to purchase home insurance. However, if you have a mortgage, you’ll need it.

“Mortgage lenders will require you to have insurance until the loan is paid off," Brito says. Lenders want to protect their investment until the title is handed over to you in case of a major disaster like a fire or storm. Homeowners insurance guarantees they will be paid even if these events happen and that the house will be rebuilt and you can remain living there and continue with the loan.

So even though home insurance isn’t mandatory by state law, most people have a mortgage and will need home insurance.

When are you required to have home insurance?

You are required to have home insurance when you have a mortgage. It’s part of your loan agreement.

In fact, "in most cases lenders can legally force place insurance on properties that go uninsured," Brito says. The lender can bill you for this insurance, and it’s often very expensive.

This is the lender's way of protecting the asset they have given you a loan for. It’s a similar situation with a car that you finance– the lender requires the maximum amount of insurance until you pay off your vehicle, which is essentially collateral for the loan. It’s the only way to ensure that the collateral is protected. The major difference is that car insurance is also required by law in most states.

How much homeowners insurance is required for a mortgage?

You will need at least the replacement cost of your home for your dwelling coverage to meet the mortgage company’s insurance requirements. This pays for your home to be rebuilt in case of a fire or other disastrous event that damages your home. Think of it this way: if you have a mortgage, you don't technically own your home yet, the lender does. They need assurance that their property is fully protected until it's paid off and the title is signed over to you. Home insurance provides that assurance.

If you live in certain disaster-prone areas, your mortgage lender may require additional coverage such as flood or earthquake insurance, which are not part of regular homeowners policies. 

Your lender will also want to make sure your coverage includes certain things like:

  • Fire and lightning
  • Damage from wind and hail
  • Theft and vandalism
  • Falling objects
  • Damage from the weight of snow, ice, or sleet
  • Frozen pipes
  • Vehicles
  • Riots or civil unrest
  • Smoke damage
  • Explosions

In some cases, your lender might require enough insurance to cover what you owe on the house, but be careful with this option. The amount of your loan is not the same as the cost to rebuild your home, and this option may leave you paying for more insurance than you need or, worse, dangerously underinsured.

It’s best to get an accurate replacement cost calculation and insure your home for that amount.

Who needs homeowners insurance?

Everyone needs home insurance, even if it’s not a legal mandate. “I don’t recommend going without insurance due to the large financial risk. For most people, their home is their largest asset and one that would be difficult to recover from should there be a loss,” Brito says.

You may want to skip homeowners insurance if you don't have a mortgage, thinking it's just an added expense. This leaves you responsible for costly repairs or even lawsuits that could devastate your finances and even cause bankruptcy.

If your home burns to the ground or is smashed to pieces by a tornado, how would you pay for the repairs? This is where home insurance plays a crucial role.

There's also the liability component of home insurance to consider- all home policies have a personal liability section that covers you for lawsuits if someone is hurt on your property or if you cause damage to theirs. One lawsuit could be financially devastating.

"I don’t recommend going without insurance due to the large financial risk. For most people, their home is their largest asset and one that would be difficult to recover from should there be a loss," says Brito.

Frequently asked questions: Home insurance requirements

Is it illegal to not have home insurance?

No, it's not illegal to not have home insurance, but your mortgage lender will require it. Also, not having it is a huge financial risk.

Do I need homeowners insurance if my house is paid for?

You don’t have to carry home insurance if you own your home outright. However, everyone should have homeowners insurance to protect their biggest asset. It is recommended by insurance, finance and real estate professionals.