Homeowners insurance covers the damage or loss of your home or any asset damage inside your home. Generally, this type of insurance is designed to restore the initial value of your home after unexpected damage. Additionally, home insurance covers the mortgage lender.
For this reason, when applying for a mortgage, your lender will require proof that you’ve secured homeowners insurance before releasing funds. The good news is that most homeowners have insurance policies. According to the Insurance Information Institute, 93% of homeowners in the U.S. have homeowners insurance. You have no reason to be the odd one out. In any case, one in 20 homes file for a claim annually. Having home insurance means you’ll afford repair bills in case of an accident.
Let’s look at why it’s a requisite to get homeowners insurance on your mortgage.
Financial Capability to Pay Your Loan In Case of Catastrophic Damage
Suppose your home is destroyed by a catastrophic event such as a hurricane and you haven’t insured your mortgage. In this case, you’ll still be required to clear out your loan by your insurer and deal with your property loss. This situation can be overwhelming, and there is a likelihood that you won’t have the financial muscle to continue servicing the debt. However, with home insurance, your property will be covered in case of such a catastrophe. This means you’ll proceed with your mortgage payments as usual.
Your Home Will Be Insured of the Replacement Cost
Most lenders will need your home insured for 100% of the replacement cost. The aim is to ensure that in case of a disaster, your home will be rebuilt to completion, putting you back in the same financial position as before the disaster. It’s a guarantee that you’ll have a reason to continue servicing your mortgage.
Areas your homeowners insurance covers that you probably didn’t know include:
- Personal Property Coverage
- Dwelling Coverage
- Personal Liability Coverage
- Guest Medical Protection
- Structure Coverage
When a catastrophic event occurs and completely wipes out your house, homeowners insurance on your mortgage ensures you get back on your feet. Your home will be rebuilt, and you can continue paying your mortgage normally. Call AOAWest today to get a quote for home insurance coverage.