Buying homeowners insurance to protect your house and personal property is a wise investment, but it also might be a requirement if you’re taking out a mortgage. Most lenders require homeowners to carry a minimum amount of coverage to mitigate their risk if the property is damaged or destroyed in a covered event. If you’re buying a home, it’s important to understand your lender’s requirements and why the minimum coverage may not be enough.

Mortgage Loans & Homeowners Insurance Minimums

Why Lenders Require Home Insurance

Your mortgage is secured by your house, so the lender has an interest in ensuring the property retains its value after a storm or other event. Lenders generally require homeowners to carry at least enough insurance to pay off the loan in the event of a total loss as well as additional riders for specific threats the standard policy doesn’t cover.

What Happens After a Disaster

Your lender will also probably require you to list them as a “loss payee” on the policy, which gives them access to the funds after filing a claim. This ensures the lender will be compensated even if the property is completely destroyed. If you paid less than 20% down, the lender might also require you to put the premium payments in an escrow account.

Why the Minimums May Not Be Enough

Most lenders only require you to carry “hazard insurance,” which protects the house and any other structures on the property. However, you may also need liability coverage, personal property protection, and all the other benefits of the standard homeowners insurance policy. Rebuilding the property may also cost more than simply paying off the mortgage, so most homeowners are better off purchasing a policy based on the property’s replacement value, not the price you originally paid.

If you’re purchasing a home anywhere in the Lexington, NC, area, the experienced agents at High Rock Insurance Agency will help protect your most valuable asset. They pride themselves on offering high-quality homeowners insurance at the best prices along with unbeatable 24/7 customer support. Visit their website for more on their home insurance options or call (336) 236-9022 to request a free quote today.