Is Home Insurance Required When Buying a House?
Buying a home is one of the biggest investments you’ll ever make and protecting that investment starts before you even get the keys. If you’re preparing for closing, you might be wondering: Do I need home insurance to buy a house?
The short answer? Yes if you’re financing the home with a mortgage. Let’s break down when home insurance is required, what kind of policy you need, and why skipping it isn’t worth the risk.
Do You Legally Need Home Insurance to Buy a House?
From a legal standpoint, there’s no federal or state law that mandates home insurance for all homebuyers. If you’re purchasing a home with cash, you’re not required to carry insurance by law.
However, most people buy homes with the help of a mortgage lender and lenders absolutely require insurance before they’ll fund the loan.
Why Mortgage Lenders Require Home Insurance
Lenders are protecting their own financial stake in the home. Until your mortgage is paid off, the lender technically owns a large portion of the property. If something were to happen like a fire, flood, or major storm they want to make sure the home can be repaired or rebuilt.
That’s why your lender will require proof of an active home insurance policy before closing day. This is sometimes called a “binder” or a declarations page showing your coverage details.
Minimum Coverage Lenders Typically Require:
- Dwelling coverage equal to or greater than the mortgage amount
- Liability protection (usually $100,000 or more)
- Hazard insurance covering fire, wind, hail, and other perils
- Your lender listed as a mortgagee on the policy
If you’re in a designated flood zone, flood insurance may be separately required under federal law (through the National Flood Insurance Program or a private insurer).
When to Purchase Home Insurance Before Closing
The best time to shop for and lock in your policy is about 2–3 weeks before closing. This gives you time to compare quotes, finalize your provider, and deliver proof of insurance to your lender.
Some lenders won’t let you close without a policy in place and others may delay funding if the insurance documentation is incomplete.
What Happens If You’re Buying with Cash?
If you’re a cash buyer, you’re not required to carry home insurance but going without it is incredibly risky.
Imagine closing on your $400,000 home, only for a kitchen fire to destroy half of it two weeks later. Without insurance, you’d be fully responsible for repairs or rebuilding, which could run into hundreds of thousands of dollars.
Even if you’re debt-free, it’s smart to carry at least:
- Dwelling coverage to protect your structure
- Personal property protection for your belongings
- Liability coverage in case someone gets hurt on your property
Can You Cancel Insurance After Closing?
Technically, yes—you could cancel your insurance right after closing (especially if you bought with cash). But this is extremely risky and often comes with consequences.
If you cancel a required policy:
- Lenders may buy “force-placed” insurance on your behalf, often at a much higher cost, and add it to your mortgage bill.
- Your mortgage may be considered in default, putting you at risk of penalties or even foreclosure.
- You’ll be unprotected financially if disaster strikes.
Insurance Payment and Escrow Accounts
Most mortgage lenders set up an escrow account to pay your insurance and property taxes on your behalf. This means:
- Your annual insurance premium is split into monthly payments
- It’s included in your total monthly mortgage bill
- The lender sends payment to the insurer when due
If you don’t want to use escrow, you’ll need to ask for an escrow waiver and show you can manage timely payments yourself.
Final Thought: Home Insurance Isn’t Just a Requirement It’s Smart Protection
While home insurance may be required by your lender, it’s also essential peace of mind for you as a homeowner. Your house is more than just a property it’s your shelter, your family’s safety net, and your financial foundation. Insuring it properly ensures you’re not starting your homeownership journey with unnecessary risk.
Next up: What Happens If You Skip Home Insurance After Closing?
Learn the financial and legal consequences of dropping your policy and how to avoid costly lender-placed insurance.
Previous Post
