U.S. Mortgage Index

Why is homeowners insurance required on a mortgage?

Short answer

Lenders generally require homeowners insurance, sometimes called hazard insurance, so the property that secures the loan is protected. Standard policies typically do not cover earthquakes or floods. Homeowners insurance is not the same as mortgage insurance.

Full explanation

pays to repair or replace the property after unexpected damage, such as a fire or a break-in. Because the house secures the loan, lenders generally ask for proof that this coverage is in force. The CFPB also calls this coverage .

A standard policy does not cover earthquake or flood damage, though it may be possible to add that coverage. Many borrowers pay the premium through an escrow account as part of the monthly mortgage payment. The lender holds that portion and pays the bill when it is due. You can shop separately for the policy.

If you do not keep insurance, the CFPB says the lender may buy coverage and charge you for it after giving advance notice. That force-placed insurance may cover only the lender and may cost more than a policy you buy yourself. Homeowners insurance protects the property. It is not mortgage insurance.

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