Homeowners insurance provides coverage for events such as property damage or loss, home damage or loss or liability related to injuries or deaths that occur on the property. Your personal property includes furniture, silverware, clothing and other movable items you keep in the home. Coverage on the home might also include a separate garage. If someone slips on your stairs, sues you and wins, liability insurance will pay up to the covered amount towards a winning settlement. Essentially, liability coverage helps protect you from losing your home by paying qualifying liability liens.
Lending Institutions Require Homeowners Insurance
Your home belongs to you but when you carry a mortgage, the lending organization has a legitimate interest the property; so when you sign a mortgage contract, you agree to buy homeowners insurance. The reason mortgage lenders require insurance is because the home is their collateral for the loan. If a fire or other catastrophe destroys the property with the result that the property has no value, then the collateral has no value either. Unfortunately, the loan still exists and you are still responsible for paying it. In such a case, many mortgage holders are unable to afford to continue to make the mortgage payments and will default on the loan. The lender is left with a mortgage in default and with no way to reclaim any of the investment because the collateral that guaranteed the loan is gone. When insurance covers the loss, the homeowner can often afford to rebuild and still continue to repay the loan.
You Pay for Insurance Directly or Through the Lender
Mortgage borrowers and lenders decide how to handle the insurance payments before signing the contract. Borrowers finance the cost of the insurance, so they select the insurance provider they wish to use. Borrowers also choose to either directly pay the insurance provider or to give the money to the lender who then pays the insurance provider. Lenders usually prefer to have insurance included with the mortgage bill because borrowers are less likely to forget or stop payments.
Lenders Notified When the Insurance Isn't Paid
Anyone who pays their homeowners insurance separately from their mortgage should make certain the bill is always paid on time. Insurance providers notify lenders when there is a lapse in payments and, if necessary, a lender will then provide coverage with force placed insurance. Usually this insurance will cost more and ultimately the cost will revert to the borrower, so it makes sense to pay for the insurance you've selected.
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Get a free quote today. Call Knight-Dik Insurance Agency, Inc. at 508-753-6353 for more information on Worcester home insurance.