Going Without Homeowners Insurance: Is It Worth the Risk?
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Homeowners insurance protects your home, belongings, and finances from unexpected disasters like fires, storms, or theft. While having it is not required by law, most mortgage lenders make having it a condition of your loan. Without it, you could be stuck paying out of pocket for major repairs — or even risk losing your home if your lender steps in with an expensive force-placed policy. This article breaks down why homeowners insurance matters, what it covers, and how to choose the right amount of protection for your home.
Written by Mae Koppes. Legally reviewed by Jonathan Petts
Updated March 13, 2025
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Do You Need Homeowners Insurance?
There’s no law that says you have to carry homeowners insurance. But while it’s not legally required, it can be a lifesaver if something goes wrong. A good policy can help repair or rebuild your home after a disaster, replace stolen or damaged belongings, and even cover medical bills if someone gets hurt on your property. This is similar to the liability coverage that comes with auto insurance.
While the law doesn’t require homeowners insurance, most mortgage lenders do.
Can You Have a Mortgage Without Homeowners Insurance?
If you have a mortgage, your lender will almost always require you to have homeowners insurance. That’s because they have a financial stake in your home and want to make sure it’s protected. At a minimum, they’ll expect you to have enough coverage to repair or rebuild the home if it’s damaged.
Lenders also usually require you to list them as a loss payee on the policy. This just means that if you file a claim, the insurance company will pay the lender first to cover any outstanding loan balance before you get any remaining funds.
The same goes for home equity loans or lines of credit — lenders often require coverage that matches or exceeds the amount you borrow.
Even if you’ve paid off your home, keeping homeowners insurance is still a smart move. For most people, a home is their biggest investment, and having the right coverage can provide peace of mind if the unexpected happens.
What Happens if You Don’t Have Home Insurance With a Mortgage?
If you have a mortgage and cancel your homeowners insurance or let it lapse, you could run into serious problems with your lender and when trying to sell your home.
Lenders May Take Action if Your Policy Lapses
Most insurance companies notify mortgage lenders when a policy is canceled or expires. If your lender finds out you’re no longer covered, they may take action. Some lenders declare the loan in default, which can hurt your credit score and even lead to foreclosure.
Others might force-place insurance — meaning they’ll buy a policy for you and add the cost to your monthly mortgage payment. These lender-placed policies are usually much more expensive than standard homeowners insurance and may offer less coverage.
Selling a Home Becomes More Difficult
Not having insurance can also make selling your home more difficult. Many real estate agents won’t list a home without insurance because they don’t want to risk something happening between the sale and the buyer securing their own coverage. While you can sell your home on your own, handling a real estate transaction without experience can be tricky and risky.
Keeping homeowners insurance protects not only your home but also your financial stability. That’s true whether you plan to stay in your house long-term or sell in the future.
What Happens if You Don’t Have Home Insurance Coverage?
Most financial experts agree that having homeowners insurance is essential, whether or not your home is paid off. Without insurance coverage, you take on serious financial risks and could be responsible for major out-of-pocket expenses if something goes wrong. Here are some potential risks of going without a homeowners insurance policy:
Property damage from natural disasters: If a wildfire, hurricane, or other disaster destroys your home, you’d have to pay the full cost to rebuild. Most people can’t afford this kind of financial loss.
Theft or vandalism: If someone breaks into your home and steals valuable personal property — like jewelry, electronics, or collectibles — you wouldn’t be compensated. The same applies if your home is vandalized.
Liability lawsuits: If someone gets injured on your property (even a trespasser), they could sue you. A homeowners insurance policy includes liability protection that can cover legal fees and damages, which could otherwise create a serious financial burden.
Mortgage lender issues: As mentioned above, if you have a mortgage and drop your home insurance coverage, your mortgage company may force-place an expensive insurance policy or even send your loan into default. This could hurt your credit score and lead to foreclosure.
Homeowners insurance provides critical financial protection, whether you own your home outright or still have mortgage payments.
What Does a Homeowners Insurance Policy Cover?
A standard home insurance policy includes different types of coverage to protect against different kinds of risks.
Here’s what homeowners insurance typically covers:
Your home and other structures: Your homeowners policy covers the physical structure of your home, including built-in appliances, electrical and plumbing systems, HVAC systems, and more. It may also cover detached structures like garages, sheds, decks, fences, and patios.
Personal property: Homeowners insurance covers personal belongings inside your home if they’re damaged or stolen. However, high-value items like jewelry, fine art, or rare collectibles may need additional coverage.
Liability protection: If someone is injured on your property or their belongings are damaged, you could be held responsible. Liability coverage helps pay for legal fees and medical bills. Some policies also cover personal liability claims for incidents that happen away from home, like dog bites.
Additional living expenses: If a covered event, such as a fire or windstorm, makes your home unlivable, your insurance provider will typically cover hotel stays, rental costs, and other necessary expenses while repairs are being made.
🚨 If you live in a high-risk area, such as a flood zone, wildfire-prone or hurricane-prone region, your mortgage lender may require additional coverage like flood insurance or windstorm insurance. In places like Florida, where hurricanes are common, these extra policies can provide much-needed peace of mind.
Keep in mind that if you own multiple properties, you’ll need a separate policy for each one. And if you rent out a property, renters insurance only covers the tenant’s belongings, not the structure itself.
How Much Homeowners Insurance Coverage Do You Need?
When choosing a homeowners insurance policy, it’s important to get enough coverage to fully protect your home. Some homeowners try to cut costs by insuring only a portion of their home’s value. But this can be risky, especially if you live in an area where the property values are increasing.
For example, let’s say you buy a home for $300,000 and take out an insurance policy for $250,000. Over the years, your home’s value rises to $375,000, but your insurance coverage remains the same. If a fire destroys your home, you’d be $125,000 short in coverage when it comes time to rebuild.
Here are key factors to consider when determining your coverage:
Replacement cost vs. market value: Many insurance companies offer policies that cover the full replacement cost of your home, rather than just its market value. This can help ensure you have enough coverage to rebuild after a disaster.
Deductibles and insurance premiums: A higher deductible can lower your monthly insurance costs, but it also means you’ll pay more out of pocket before insurance kicks in. You’ll need to find the right balance for your financial situation.
Liability coverage limits: Standard liability protection may not be enough if you have a high-risk situation. Increasing your liability coverage can provide added financial protection.
Extra coverage for high-risk areas: If you live in a hurricane, wildfire, or flood-prone area, additional coverage like flood insurance or windstorm insurance may be necessary. Mortgage lenders often require these policies.
Understanding your home insurance coverage is key to protecting your investment. If you’re unsure about the type of coverage you need, an insurance agent or insurance professional can help you get a quote and compare options.
Let’s Summarize...
Homeowners insurance offers important protection. It provides liability coverage if someone gets hurt on your property and financial protection against damage or theft. While it’s not legally required, most mortgage lenders require coverage at least equal to the loan amount.
Since your home is likely your biggest asset, protecting it makes sense. If the cost seems high, remember that insurance helps you avoid major unexpected expenses that could be financially overwhelming.