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Is it mandatory to insure your home?

The reference to “mandate” inevitably stirs up memories of the debate over the health insurance reform. Those who drive will also know that, with one state standing out against the tide, there’s a mandate to carry a minimum amount of insurance if you drive on the public roads. For these purposes, we’re talking about an obligation imposed by law with penalties if you fail to obey. So what’s the situation when it comes to insuring your home? The answer is reasonably straightforward. If you borrow money and the loan is secured on your home, it will be a condition of the loan that your home is properly insured. This is a contractual obligation you voluntarily accept and not a state or federal law. But it works in exactly the same way because there are penalties if you fail to maintain adequate cover.

Put simply, if the person or company lending you money wants to be protected, the property must be insured. Otherwise, the security would be lost if your home burned down. So if the lender discovers you do not have an insurance policy in place, the lender can insure and send you the bill. If you cannot or will not pay, the lender has the right to foreclose and sell the property. That’s about the biggest penalty you could face for failing to have an insurance policy in place. It’s exactly the same if you buy into a condo or rent. There are almost always contractual terms requiring you to buy home insurance. If you break the contract, you can be thrown out of your home. So the only people who are not obliged to buy cover are those lucky people who own the property outright. If they want to risk total loss, they can decide not to insure.

In this, there’s no obligation to insure your own contents. Lenders are only interested in enough insurance money to repay their loans. If you have neglected to insure your possessions, that’s your loss. So, to that extent, it’s mandatory to buy homeowners insurance whether you own or rent.

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