Home Insurance vs. Mortgage Insurance

When you choose to purchase a home, the mortgage lender may require you to also secure homeowners insurance or mortgage insurance. If you aren’t sure what the difference is between these two types of coverage, continue reading. 

What Is Home Insurance?

Homeowners insurance provides financial protection for your most valuable asset; your home. You pay monthly premiums to an insurance company in order to protect your home and its contents from adverse events that are covered within your policy. For example, if your home is damaged or destroyed in a storm, your insurance will provide you with the financial resources you need to repair or replace the house. 

Most homeowners insurance policies include four different types of coverage. These coverage types are:

• Dwelling coverage – This covers the structure of your home being damaged by hazards like wind or hail
• Personal property coverage – This covers your home’s contents and any personal belongings
• Liability coverage – This protects you from liability lawsuits filed against you or your family members
• Additional living expenses coverage – This covers living expenses if you are forced to live outside of your home temporarily due to adverse events

What is Mortgage Insurance

Mortgage insurance offers financial protection to a mortgage lender. These policies are designed to reduce the risk that a borrower will default on their mortgage if they are unable to pay for a significant period of time. 

A mortgage insurance policy protects the lender’s asset, which is the repayment of the mortgage loan they contracted. Mortgage insurance is usually only required in high-risk situations, such as when the borrower makes a small down payment. 

Which Type of Insurance Do You Need?

The decision to purchase home insurance vs mortgage insurance depends on the context of your home purchase. How your property is financed is the main factor that should be used to determine which makes the most sense, or if you need both. 

If you own your home outright, you won’t need homeowners insurance or mortgage insurance, but that doesn’t mean you shouldn’t buy a homeowners policy. Remember, if adverse events occur, you will be liable for the cost of repairs. Therefore, it is always best to protect yourself with an insurance policy. In regard to mortgage insurance, people who have paid off their mortgage or didn’t take one to begin with are not in need of this product. 

On the other hand, someone with a mortgage will typically require homeowners insurance. The lender wants to protect their asset, so you need to have coverage. Mortgage insurance would only be required if you got an FHA loan or conventional mortgage with a small down payment. This is to protect the lender from risk. 

Find Home Insurance or Mortgage Insurance

Just because you are required to get home insurance or mortgage insurance doesn’t mean you have to break the bank to pay for it. The insurance experts at Insured For Life are ready to help you find affordable coverage. Give us a call at 1-888-989-0079 to get started with a free quote.