At what point do you buy homeowners insurance when buying a home?

Buying a house comes with many considerations, each arising at different stages of the process. But when you’ve settled on your dream house and made an offer, homeowners insurance may not be at the forefront of your mind. However, it’s another significant expense in the home buying process, so it’s worth considering as you head towards closing.

In this piece, we’ll explain homeowners insurance and help answer all of your questions, including when — or if — you need to buy it.

Is homeowners insurance required?

You’re not legally required to purchase home insurance, but many mortgage lenders do require it as a condition of approving a loan. So this is a yes-and-no answer.

If you buy a home with a mortgage, it’s really the lender buying the home. As such, lenders will demand you get a homeowners insurance policy to cover catastrophic damage from things like fire, lightning, tornadoes, or other unforeseen events. This protects the lender’s investment, even though you’ll foot the bill. Once you’ve paid the house off, however, you’ll be happy you had the insurance if your house sustained some covered damage during the mortgage.

When do you buy homeowners insurance when buying a house?

You can purchase a homeowners insurance policy at any time during the closing process. However, it’s recommended you have it in place at least a few days prior to your closing date.

Therefore, you should start searching for a policy at least two to three weeks before closing. Many insurers understand the need to move quickly, so you can get a quote in just a few minutes and some providers can have a policy in place in a matter of hours.

Your lender must have proof of your insurance coverage, called a binder, to ensure a smooth closing day. It’s best to get your shopping done early so you don’t delay your closing.

While you can wait until the last minute, there are benefits of shopping early. First, when you shop early, you have more time to research insurers, gather quotes, and compare policies and prices. Second, shopping early gives an insurer more time to “underwrite” your home. That means the insurer can closely investigate your home to identify if your home has any unusual or costly details that may be difficult or expensive to replicate if damaged. That will ensure you have the proper coverage to protect your specific home.

Related: Is homeowners insurance included in a mortgage?

What kind of homeowners insurance do you need?

Standard homeowners insurance policies can assist in the repair or reconstruction of your house in the event of significant damage outside of your control. Depending on where you live, you may need different insurance policies or types of coverage. A standard homeowners insurance policy usually covers:

• Your home and possibly other structures on the property like a detached garage or storage shed.
• Your belongings (provided you can place a monetary value on it).
• Additional living expenses (ALE) in the event of temporary relocation while your home undergoes repairs.
• Legal bills in the event somebody sues you for an injury sustained on the property.

Beyond those standard coverages, you may consider additional coverage based on where you live. For instance, typical homeowners insurance policies don’t cover earthquakes or floods. Your lender may require you to get a policy that includes these coverages based on the property location, or you may just prefer to err on the side of caution.

If you have valuable items that exceed the special dollar limits of a typical homeowners policy, like an art collection or valuable jewelry, you may want to purchase special extra coverage called a Personal Articles Floater (PAF).

Every situation is different so when shopping for homeowners insurance, consider both lender requirements and your personal preferences and comfort.

How much insurance do you need?

The size of your homeowners insurance policy depends on the value of your home, the value of your possessions, and any non-standard additions you need covered. 

To figure out how much you need, talk to your agent about a recommended dollar amount. Take an inventory of your belongings and determine if their value falls within the policy’s dollar limit for personal property. Then, consider the amount of ALE coverage you’d need if you were displaced from your home for an extended period of time. Finally, figure out how much liability coverage you need. Most policies offer a minimum of $100,000 but the Insurance Information Institute (III) recommends $300,000 to $500,000 for the average homeowner to cover their assets.

There are some good opportunities to save on homeowners insurance if you take some time with it, too. Don’t assume you have to cover your home at its market value or appraisal value or even the value of your loan. Insurance companies want to know how much it would cost to rebuild your home tomorrow, which doesn’t factor in the cost of the land the home is built on. As such, the insurable amount could be lower than the home’s cost.

The insurance company will determine the insurable amount so it’s worth doing the shopping yourself rather than just going with the first company the lender recommends. Likewise, depending on the insurer, you can save some money if you bundle multiple policies, install smart home technology, or have a “green” home. This is all the more reason to shop or explore the policies offered by your existing insurance companies.

Still, don’t count on insuring for less than market value. Sometimes, homes have hard-to-replace details or more expensive materials that cost more to replace.

What happens if I don’t have homeowners insurance?

If you don’t have homeowners insurance, you should hope for good luck. If your home incurs damage, from a fire or storm for instance, you’ll have to pay out of pocket for repairs if you don’t have homeowners insurance. If the damage is so bad you have to vacate your home while it’s being repaired, you will really regret not having homeowners insurance. You could even lose your home if it’s destroyed in a fire and you don’t have the money to rebuild.

While homeowners insurance isn’t legally required, most lenders require coverage as a condition of a mortgage. As soon as your offer is accepted, you should start shopping for a homeowners insurance policy to get the best deal and best coverage possible. (It will also avoid closing delays.) Even if you’re not required to get homeowners insurance, you should in most cases still do it. You don’t want to pay for a complete rebuild.