Purchasing a home is a big investment. Although you want to protect your new asset, a home insurance policy may seem like just another cost. So, do you have to have homeowners insurance? From a legal standpoint, the answer is no. However, if you’re working with a mortgage lender, your lender will want a copy of your homeowners insurance declaration page to show your coverage. They may also require a "mortgagee clause," where the lender is shown as a “loss payee” and lienholder on the property,  ensuring payment to the lender in case of loss or claim.

If you own less than 20% equity in your home, you'll likely be required to buy homeowners insurance to protect your lender's investment. Your lender may also require a "mortgagee clause," ensuring payment to the lender in case of loss or claim.

Regardless of your situation, home insurance is always a wise decision. If possible, you should have enough coverage to rebuild your home, replace all your belongings, and cover your assets.

What Do I Need Homeowners Insurance For?

Homeowners insurance is a policy that covers a wide range of risks and liabilities that could impact your property. It's a "package policy" that covers not only property damage but liability for injuries or property damage caused by you, your family, or your pets. From natural disasters and theft to accidents and legal liabilities, homeowners insurance offers financial support in times of crisis.

What’s Covered in a Standard Homeowners Insurance Policy?

A standard homeowners insurance policy typically provides coverage for aspects such as:

• The structure of your home, including the walls, roof, and foundation.
• Your personal belongings, such as furniture, appliances, and clothing.
• Liability protection, which helps cover legal expenses if someone is injured on your property and you are found responsible.
• Additional living expenses, or “loss of use” if you are temporarily unable to live in your home due to a covered event.

Insurance policies will generally cover the cost of having to rebuild your house if it’s irreparably damaged due to certain acts of nature, like a fire or lightning.

What’s Not Included in a Standard Homeowners Policy?

Homeowners insurance covers many disaster-related damages, but ​​you may be surprised about what’s not covered by these policies. Poor home maintenance issues (such as water damage from a leaky water heater) usually aren't covered, making them the homeowners' responsibility.

Additionally, depending on your location, there may be other types of insurance you need in addition to your general policy. Review your coverage carefully to ensure you're adequately protected.

Keep in mind that exclusions may vary by policy/provider. Common items not covered (or covered in a limited capacity) in a standard homeowners policy include:

• Flood damage
• Earthquake damage
• Hurricanes or windstorm damage
• Sewage/pipes damage
• Pest damage
• Maintenance-related issues and routine wear and tear
• Certain high-value items such as jewelry, artwork, or collectibles
• Home-based business liabilities
• Detached structures like a garage

You can add other endorsements to your basic homeowners insurance policy depending on your lender’s requirements and your own preferences. Of course, options, add-ons, and separate coverages will increase the premium.

How Much Is Homeowners Insurance?

The cost of homeowners insurance varies based on factors like location, home characteristics, coverage limits, deductibles, claims history, and risk factors. To determine the cost, you’ll first need to define your coverage needs.

The best way to determine how much insurance you need for your personal belongings is by doing a home inventory. Insurance on your personal belongings usually includes cases of theft. Expensive items typically have a dollar limit to the coverage you can get for them if they’re stolen, so talk to your insurance rep about coverage for any items of particular value.

How to Buy Homeowners Insurance

The first step is to assess your needs to determine the coverage required. Shop around for homeowners insurance and get quotes from a few agencies. Most sell policies from several insurance companies and will be able to match your needs accordingly.

You can start by searching for local agents using sites such as Trusted Choice, which is affiliated with numerous companies. Also, some state insurance departments publish rate comparisons. Throughout this process, work with insurance agents to customize the coverage to fit your needs.

Next, gather the necessary information for the application and apply for the policy. Review and compare offers, considering coverage, premiums, and customer service. Once you've selected a provider, follow their instructions to finalize the purchase. Pay the premium and obtain the policy documents.

Finally, you’ll need to periodically review your insurance coverage to ensure it still meets your needs. Make adjustments as required, especially when significant life events occur. Remember, it's always beneficial to consult with an insurance professional who can guide you through the process and answer any questions you may have.

Find Your Dream Home with AAFMAA

If you’re unsure it’s the right time for you to purchase a home or refinance an existing mortgage, contact AAFMAA Mortgage Services LLC (AMS) online today. We offer a wide range of affordable options tailored to you.

One of our Military Mortgage Advisors — who are licensed Mortgage Loan Originators — will be happy to provide you with an honest and fair comparison of your mortgage options.

Our mission is to ensure existing and prospective AAFMAA Members obtain the best mortgage possible. Get your free mortgage assessment today!

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This article was originally published September 16, 2021.