If you are taking a loan out to pay for your new home, your lender will require you to have home owners insurance. This is required to protect not only the home owner from financial loss but also the lender, in case of disaster. Purchasing home owners insurance protects the lender’s investment and they may have certain requirements for your policy.


Deductible Limits

The first item lenders may require is a deductible limit. The deductible is the money a home owner pays to the insurance company before the company will pay on a claim. Policies with higher deductibles usually carry lower premiums for the homeowner; however some lenders request that a deductible not exceed certain amounts, usually no more than 2% of the total value of the house.


Policy Terms

Lenders require that they are named as the payee in the event that there is a loss on the policy. This assures the lender that if the home is destroyed, they will receive what is still owed on the loan. After the mortgage has been paid, any money remaining is paid to the home owner.

The start date of insurance coverage on a home must begin no later than the day the mortgage loan was closed. This insures that once the home is signed over to the home owners, it is protected, thus protecting the assets of the home buyer and the lender.


Policy Amount

Lenders require a policy amount to be the highest cost it would take to replace the home and its total mortgage. This is done so that the minimum cost it would take to rebuild a home is covered in case of disaster. The home owners and the lender’s interests are sheltered and can be replaced if needed by have a policy with a high coverage amount.


Hazard Coverage

Lastly, lenders require that if your home is in an area prone to disasters, that extra coverage (hazard coverage) be added to the policy. By requiring hazard coverage, it protects the home if damage is done by flooding, earthquakes and/or hurricanes.

Home Insurance is necessary to protect all involved home buying parties and is a wise and required choice for those wanting to be insured.

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