What is the purpose of home insurance?

Why do mortgage companies require home insurance? What does it do?

Answer
“The purpose of home insurance and most types of insurance is to protect you from paying out of pocket when something happens to one of your assets.
For example, when you purchase car insurance, a car insurance company agrees to cover any damages or injuries you cause while driving. If you add on additional coverage, they’ll also agree to cover your vehicle or injuries.
The same is true for home insurance. Should your home be damaged by a fire or covered event, your home insurance would cover that damage. They will also cover any damage to your personal property or if someone is injured while at your home.
Mortgage companies require insurance because they are loaning you money to purchase a home. Since they have a legal right to the building if you default on your payments, they want to ensure that it’s protected to maximize its resale or auction value.
If you don’t have home insurance and your home is damaged or destroyed, you’d still owe the remaining amount on your mortgage. If you have home insurance, your insurance pays to replace your home or covers the remaining balance of your mortgage.
Just like home insurance, car insurance is an important part of car ownership. To compare rates and make sure you get the best coverage possible, use the Jerry app. Sign up in less than a minute to find the best rates possible.”
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Emily Maracle
Answered on Sep 09, 2021
Emily Maracle is a car insurance specialist living in New York. Originally from the Pacific Northwest, she has a degree in English Literature and a background in customer service. She enjoys cooking, gardening, and living sustainably. In the future, she can't wait to upgrade to a hybrid or electric car.
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