Mortgage insurance vs. homeowners insurance

Homeowners insurance is financial protection for you and your home in the event of property damage or an accident, whereas mortgage insurance protects your lender if you fail to pay your mortgage.

Kara McGinley

By

Kara McGinley

Kara McGinley

Property and Casualty Insurance Expert

Kara McGinley is an insurance editor at Policygenius, specializing in home, auto, and renters insurance. She's been writing about insurance since 2019, and her work and insights have been referenced in Kiplinger and WRAL.com.

Published October 28, 2020|2 min read

Policygenius content follows strict guidelines for editorial accuracy and integrity. Learn about our

editorial standards

and how we make money.

Buying a new home is an exciting step in many people’s lives, but shopping for insurance and managing all of the paperwork can be confusing if you’re not sure what everything means. Two kinds of financial protection that are often required by lenders are homeowners insurance and mortgage insurance, and both serve their own distinct purpose.

Mortgage and homeowners insurance are both part of the homebuying process, so it’s understandable how the two are often confused for one another. But mortgage insurance and homeowners insurance are actually two completely separate forms of financial protection that differ in terms of who is protected: Homeowners insurance protects the borrower, while mortgage insurance protects the lender.

Homeowners insurance covers your home, personal property, and legal expenses if your home is damaged, burglarized, or you’re held liable for an accident. Private mortgage insurance (PMI) is designed to protect your mortgage lender in the event that you fail to make your mortgage payments.

Key Takeaways

  • Homeowners insurance and mortgage insurance are two separate types of insurance that differ in terms of who they protect

  • Homeowners insurance protects the borrower, whereas mortgage insurance protects the lender

  • Homeowners insurance covers your home from expensive financial losses like fires and storms, while mortgage insurance protects lenders in the event that you fail to make mortgage payments

Homeowners insurance vs. mortgage insurance: What you need to know

Homeowners insurance and mortgage insurance actually don’t have much in common from a coverage standpoint, but there is a chance you could need both depending on your circumstances. The table below breaks down the main differences between the two.

Homeowners insuranceMortgage insurance
Who does it cover?The homeownerThe mortgage lender
What does it cover?Covers your home, personal property, and liability if your home is damaged, burglarized, or you’re held liable for an injury or property damageCovers your lender in the event that you fail to make good on your loan payments
Is it required?Not required by law, but most mortgage lenders require you to have a policyRequired if you take out a loan and your down payment is less that 20% of the purchase price
Is it included in my mortgage?It can be if you pay your premiums through an escrow accountYes

Another important difference between the two is that you don’t have a say in who your mortgage insurance provider will be — that’s up to your lender. With homeowners insurance, the borrower shops around and buys the policy.

Ready to shop home insurance?

Start calculator

What is homeowners insurance?

Homeowners insurance provides financial protection for your home, personal property, and your assets from expensive financial losses like a natural disaster or house fire.

Most lenders require homeowners insurance before letting you take out a mortgage, but unlike mortgage insurance, homeowners insurance is designed to protect you, not your lender.

Homeowners insurance is made up of six coverage provisions, and each offers its own distinct protection. Below are the coverages in a standard homeowners insurance policy.

  • Dwelling coverage: Covers the structure of your home if it is damaged or destroyed by a covered loss

  • Other structures coverage: Covers any structures that aren’t attached to your home, like a garage

  • Personal property coverage: Protects your personal belongings if they are stolen or damaged both on or off your property

  • Loss-of-use coverage: Pays for you to live elsewhere while your home is being repaired due to a covered loss

  • Liability coverage: Pays for legal expenses and medical bills if you’re held liable for an injury or property damage

  • Medical payments coverage: Pays for your guests medical expenses if they are hurt while in your home

Learn more about homeowners insurance

What is mortgage insurance?

Mortgage insurance protects your mortgage company if you fail to pay back your loan. If you have a conventional home loan and your down payment is less than 20% of the home’s purchase price, your lender will likely require private mortgage insurance to guarantee that it will be covered for the risk of lending you money.

Learn more about how mortgage insurance works

More about

Homeowners Insurance

Homeowners insurance statistics

Stats to help you understand homeowners insurance — from the most common types of claims to how much home insurance costs.

Read more

How much homeowners insurance is required by mortgage lenders?

Before taking out a mortgage, your lender will require that you get enough homeowners insurance to pay for a rebuild of the home in the event of fire or storm damage.

Read more

Home business insurance: what is it & who needs it?

Coverage for your home business is fairly limited under your homeowners policy. To maximize coverage for your home-based business, you’ll need separate home business insurance.

Read more