Is homeowners insurance included in the mortgage?
Homeowners insurance is not included in the mortgage. The purpose of mortgage insurance is to protect the bank in the event you default on your loan. Home insurance, on the other hand, protects you in the event a home is damaged or destroyed. Your mortgage loan likely requires you to carry certain homeowners insurance limits. Scroll down to learn more.
Free Insurance Comparison
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
UPDATED: Jul 19, 2021
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider. Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance related. We update our site regularly, and all content is reviewed by life insurance experts.
Insurance Q&A: “Is homeowners insurance included in the mortgage?”
In order to answer this question, it’s important to point out the difference between mortgage insurance and homeowners insurance.
The purpose of mortgage insurance is to protect the bank that loaned you the money to purchase your home in the event of default.
Mortgage insurance is necessary for first mortgages in excess of 80% of the total appraised value of your home.
Mortgage companies will not approve your loan unless you have a homeowners policy in place; it’s necessary to protect their interest in your home.
Imagine if your house burnt down one week after you bought it; you wouldn’t want to continue paying for it, and the bank would be out of luck.
Ultimately, your homeowners insurance is not included in your mortgage, meaning your lender will not actually insure your home or pay claims against your insurance policy.
But your mortgage lender may partner with an insurance company to offer the service (be sure to shop around though!).
What About Impounds?
However, it is possible to have your homeowners insurance premiums and property taxes included in your monthly mortgage payments through a process called impounding.
Basically, your mortgage company allows you to prepay the cost of your homeowners insurance and property taxes by collecting the money from you over the course of the year.
The lender then sends the money to your insurance company and property tax assessors.
Some homeowners may find it convenient to pay the cost of these bills in smaller increments throughout the year versus all at once annually.
Keep in mind that impounding your taxes and insurance may reduce your ability to earn interest on your money over time; instead, the lender receives all that potential interest.
Conversely, if you don’t impound your homeowners insurance and taxes, you may forget to make a payment, so choose wisely.