Is home insurance required to buy a home?
You're required to show proof of homeowners insurance to your lender before they'll relinquish the keys to your property or even finalize and fund your home loan. Until your home is paid in full, your lender holds a lien on your property—so it's also in their best interest to make sure the property is insured while you're paying down your mortgage, in case the home is damaged or destroyed.
If you're paying for your new home with cash or an unsecured line of credit (credit card or personal loan), you won't be required to show proof of home insurance before moving. Home insurance isn't mandated in any state, so you could conceivably go without it if you're not financing your home. Still, even though it's not required by law, you'll want to consider protecting the equity in your home, not to mention the roof over your head.
How to shop for home insurance
You'll usually work closely with a loan specialist during the mortgage approval process and they'll let you know when to buy home insurance. However, you can start shopping for a policy as soon as you know your new address. Shopping early can give you more to time to find the right policy and even help save money.
Your lender may provide a referral, but you'll often save more money by bundling insurance. That means purchasing insurance from the same company for your motor vehicles and home. Bundling insurance can offer more savings or a multi-policy discount. Because you aren't forced to buy from a particular insurer, it's a good practice to compare pricing, coverages, and consumer reviews for a few different companies before making a final choice.
What to look for in a home insurance policy
Check the limits on your personal property and liability coverage:
Your belongings (clothes, furniture, electronics, jewelry, etc.) are insured under Coverage C (personal property) on your policy, and you'll want to make sure the limit is enough to cover everything you own. Keep in mind, certain valuable items may fall under a category with a “sublimit” set by your insurance company.
For example, your insurer may have a $1,500 sublimit on jewelry. That means any piece worth more than $1,500 would have to be protected by adding a rider to your policy (or “scheduling an item”).
Coverage E (liability) protects you if you're liable for an accident on your property that injures someone. Make sure to select a liability limit that properly covers what you have in assets. Most home insurance policies max out at a $500,000 liability limit. If you need more than a half million dollars in coverage, you can purchase umbrella insurance which provides extra liability coverage for home and auto policies.
Be aware of exclusions:
Depending on your state and your insurance company, there will be a list of things your insurer won't cover on a standard policy. Earthquakes, landslides, mudflows, and any other earth movement will be excluded on just about every policy. Flooding also won't be covered.
If you're at risk for a peril not covered on your policy, ask your home insurance agent or company if there's an option to purchase protection for excluded incidents.
Understand your deductibles:
Home insurance policies will include a deductible for property damage. Your deductible is the portion of the claim you're responsible for, so you'll want to make sure the amount is within your budget.
When it comes to home insurance, your deductible isn't always a set dollar amount like with car insurance. It could be a percentage of your policy's dwelling coverage. For example, let's say you have a wind damage claim for $7,000. If your home is insured for $150,000 and your policy's deductible is 2%, you would be responsible for $3,000 and your insurance company would pay the remaining $4,000.
Your policy may even include a split deductible, which means you'll have a set dollar amount for most claims, but may have a percentage apply for wind damage or other select perils.
How home insurance works with mortgage and escrow
Most first-time buyers have their home insurance in escrow. Escrow accounts hold the funds designated for your home insurance and property taxes. Each month, you'll pay a certain amount of money (typically, a few hundred dollars) above your normal mortgage payment. Your lender/mortgage servicer will keep the extra funds in an escrow account.
When your home insurance and property taxes are due, your mortgage servicer will pay them on your behalf from the escrow account. Lenders recommend escrow accounts to ensure you're up to date with home insurance and property taxes. Some homeowners prefer to use escrow so they can pay for insurance and taxes in monthly installments, rather than paying the bills annually or bi-annually in one lump sum.
Is escrow required?
If your loan is financed by the Federal Housing Administration, your lender will require you to have an escrow account. Conventional loans can go either way. If your loan amount is more than 80% of your property's value, your lender will usually require you to escrow. That's because if you don't have much equity in your home, you may not be as invested in protecting your property as your lender—they'll want to make sure your home insurance policy is in place and up to date.
If your lender does not require you to escrow, understand that your homeowners insurance isn't included in your mortgage payment and you'll have to pay the premium separately. It's up to you if you want to pay your policy in full or make monthly payments, but keep in mind payment plans will vary by insurer.
Is homeowners insurance included in closing costs?
Your lender will require the first term of your homeowners insurance to be paid at closing. Most lenders will collect about 10 – 20% of your annual home insurance premium in your closing costs and deposit the funds into your escrow account for the next time the bill becomes due. If you don't escrow, you'll often have to pay the entire home insurance premium for your first year in the home at closing. Additionally, some lenders may charge a nominal fee to waive your escrow requirement.
Private mortgage insurance vs. homeowners insurance
If your down payment is less than 20%, most lenders will require you to pay private mortgage insurance (PMI). Mortgage insurance is a safeguard for your lender—it's completely different from home insurance and does not insure your property in any way. PMI fees will vary, but you can expect to pay about 1 – 3% of the home's purchase price. PMI is added to your monthly mortgage payment and exists solely so the lender is protected in case you default on your mortgage loan.
Home warranty vs homeowners insurance
Your home insurance policy won't cover normal wear and tear or mechanical breakdowns. That's precisely what a home warranty is for, designed to supplement your home insurance in case things go wrong around the house. For instance, if your air conditioning unit stops working, a home warranty plan can pay to repair or replace it. Home warranties cover nearly all home appliances and are purchased separately from your home insurance.
How to get homeowners insurance through Progressive
We offer multiple ways for quoting and buying home insurance:
We'll ask easy questions, then you choose coverages. Plus, we offer an online quote discount.
Call a rep
You'll speak with a licensed representative who will guide you through everything.
Through an agent
If you want local advice, we'll connect you with a licensed, independent agent near you.