More on Home Insurance
More on Home 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.
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
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.
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 insurance||Mortgage insurance|
|Who does it cover?||The homeowner||The 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 damage||Covers 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 policy||Required 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 account||Yes|
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.
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.
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.
Kara McGinley is an Insurance Editor at Policygenius. She previously worked as a freelance writer and a copywriter for various startups. Her work can be found in Teen Vogue, The Culture Crush, and more.
Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.
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