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Legal Aspect
Law does not require homeowners to purchase home insurance but mortgage companies do require you to have a home insurance first before they will finance your house. Having insurance is like an investment in case risks happen such as fire. However, there are also natural reasons on which insurance companies deny to cover home insurances; a concrete example of this is earthquake. There is no insurance policy that covers destruction brought by earthquakes. Home insurance is also a way of security in which mortgage companies will have a guarantee of getting back their money in case the house was destroyed due to calamities and other reasons of its destruction.
If your house is located near a flood prone area, it is the objective of the mortgage company to require you to acquire a flood insurance for your home in which this insurance is not actually related to your home insurance but another special type of insurance offered by insurance companies. Yet, it is more practical to have a home insurance for you and your house to be pocket safe from any renovation or even worse of all, the reconstruction of your house. It is better to have a home insurance for you to avoid future uncertainties brought to your house by catastrophes.
When you have borrowed money from a financial institution such as banks, home insurance is a legal requirement for you to be credited for a loan. Banks wouldn't want to invest their money on houses that when it gets destroyed, their capital goes down with the destruction. When borrowing from a lender, legality of getting a home insurance depends on the terms and condition of the lender whether he demands that you get a home insurance or not. Most of the time, these money lenders do require you to have a home insurance in order for them to be assured that they will get their money back in case of risks.
You may wonder why lending institutes demand you to have a home insurance when you know that you are the sole owner of the house you are living in. It is because lenders are the partial owner of the house once you have signed the contract you have agreed upon and it is the duty of the lender to know the full condition of the house. If ever the house was burned in a fire, the lender still has the guarantee of getting his money back since the insurance company will pay for the damage brought by the fire. In that way, the lender doesn't lose his money which he lends you because of the guarantee by the insurance company. Even though the law doesn't require you to have a home insurance, still, it is wise to have a home insurance for your house because you never will know when you will need it in the future. Better invest in an insurance company as soon as possible to avoid further uncertainties.
