What Kind of Insurance Do You Need When You Buy a House?

Mortgage and Lending with US Bank NMLS: 22343

What Kind of Insurance Do You Need When You Buy a House?


Let me start by saying that I'm not in the insurance business, but that the insurance business is in mine.  And my business is helping home buyers and homeowners get a great mortgage.  So just what are the insurance requirements when you buy a home or go to refinance a mortgage on residential real estate you own in California?  Why does your lender care about the insurance coverage you keep?  


Homeowner's Insurance

Also known as "hazard insurance," or "fire insurance," this is the key policy you will be required to carry if you have a mortgage.  While the actual coverage may seem to be a clear benefit to you, there's a mutual benefit for the lender.  After all, the home is both where you live and the collateral for the lender's loan.  Without the home itself, it's unlikely the lender would/could ever be paid back in the event of a loss.  By this logic, some homeowners who are "free and clear," meaning they have no mortgage, will opt not to carry a homeowner's policy.  In the event of a total loss from a fire, for example, they would be completely out of a place to live with no reimbursement for loss of its use.  Ouch.


Flood Insurance

If your lender determines that your property is in a FEMA special flood hazard area, you'll be required to carry flood insurance.  Regulation requires that mortgage servicers impound your flood insurance premium even if your homeowner's insurance and property taxes are not impounded (aka "escrowed").


Earthquake Insurance

Earthquake insurance is not required by lenders in California, even though the risk of earthquake damage is real in many areas.  You can, at your discretion, purchase earthquake insurance but only about 10% of CA owners will choose to do so.


Title Insurance

When you buy a home and use financing, you'll be required to get a "lender's" title insurance policy.  This protects the lender from title defects and future claims against the title (which, like with homeowner's insurance, could jeopardize their rights to the collateral).  You'll notice that you're also being quoted an "owner's" policy, which is technically optional.  The vast majority will purchase this coverage too, and with good reason.  Should anyone claim an interest in your property down the road, the owner's policy would provide you cover and the title insurer would step in to deal with the claim.  Worth noting is that the owner's title insurance policy is in effect for the time you own the home.  The lender's policy is in place for the time you hold the specific loan involved in the transaction.  If you refinance, you would purchase only a new lender's policy.


Life Insurance

Like earthquake insurance, life insurance is not required when you take on a mortgage.  Also like earthquake, it may not be a bad idea.  Life insurance can help a surviving spouse pay off or better manage the payments on a loan in the event of the death of the other spouse, and you can make a very good argument that life insurance is an incredibly responsible financial purchase to consider at the time of home ownership.  We work with some great life insurance agents on a regular basis, so ask if you need a recommendation.


Private Mortgage Insurance

I am including private mortgage insurance or "PMI" in the insurance category because it makes sense that when borrower looks at the voluminous paperwork involved in buying a home, all of the insurance terminology starts to look the same.  But PMI is exclusively related to your mortgage and if you're putting at least 20% down and/or not using an FHA loan, you may not have PMI at all.  So the best way to look at PMI is not as an insurance coverage required by the property, but one sometimes required by the loan.  You also do not need to "shop" for PMI like you would any of the other insurance types listed above, like homeowner's.  Your lender should always attempt to find the least expensive private mortgage insurance available among the eligible providers.


So, to recap.  If you have a mortgage on a home, you will always need homeowner's insurance and a lender's title insurance policy.  You may be required to carry flood insurance.  Depending on your loan's characteristics, you may also be required to have private mortgage insurance.  Owner's title insurance, earthquake insurance and life insurance are up to you.  If you need help or perspective on these decisions and choices, I am always available to share my experience and insight.  We routinely work with many great insurance professionals because our industries are inevitably intertwined with the financing of real estate.  If you would benefit from a referral, please don't hesitate to ask.


You're in good hands, 



Robert J. Spinosa
Vice President of Mortgage Lending

Guaranteed Rate
NMLS: 22343 
Cell/Text: 415-367-5959 


Marin Office:  324 Sir Francis Drake Blvd., San Anselmo, CA  94960

Berkeley Office:  1400 Shattuck Ave., Suite 1, Berkeley, CA  94709

*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate.  In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.


Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood ChicagoIL 60613 - (866) 934-7283

Comments (23)

Anna "Banana" Kruchten
HomeSmart Real Estate - Phoenix, AZ

Rob having the right kind of insurance is so important for every home owner. A week or so ago long time clients of ours had a fire and there home was deemed a total loss. Thankfully all are ok. And thankfully they have excellent insurance.

Jan 08, 2020 01:37 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good evening Rob Spinosa ,

A great post as I'm interested that my clients make sure they have good insurance coverage. A couple of years ago I was meeting with a seller on listing his home. They were moving out of state and I advised him to call his insurance carrier and let them know the house was going to be vacant because he might have a higher insurance policy but he needed to find out the particulars so his home would be covered properly. He looked at me and proudly said "I own my house free and clear so I canceled my home owners policy..I don't need it any more."  I was thunder struck and asked him if the house was struck by lighting and it burned to the ground who was going to cover it? He looked and me and had a light bulb moment! "Oh I never thought of that" he stammered!

Jan 08, 2020 04:03 PM
Rob Spinosa

Great perspective, Dorie Dillard CRS GRI ABR.  My uncle is a retired Allstate agent.  They settled in Myrtle Beach years ago when they sold their NY home and relocated south.  They paid cash for their retirement home as did many others in their new neighborhood.  A while back, you may remember, fires ravaged some of that area.  One in three of his neighbors penny-pinched and had no homeowner's coverage.  Those same people went from happy retirees to homeless retirees in the span of several hours.  Definitely not funny.  My uncle, the retired insurance agent, was fully covered...

Jan 08, 2020 04:38 PM
Lottie Kendall

Yikes, Dorie! Did your seller quickly put insurance on the property? No many of us would want to be in the shoes of the Myrtle Beach buyers that Rob Spinosa mentioned.

Jan 08, 2020 06:38 PM
Lottie Kendall
Compass - San Francisco, CA
Helping make your real estate dreams a reality

Rob, are you seeing any buyers not be able to go forward with a purchase due to not being able to obtain wildlands fires insurance? We been discussion this issue a lot in the last couple of years.

Jan 08, 2020 06:39 PM
Rob Spinosa

Lottie Kendall , yes, this is happening.  We just had a close call in Healdsburg.  Borrower ultimately found coverage but at a premium much higher than expected.  Fortunately, the increase did not blow up the debt-to-income (DTI) ratio, but buyers in fire-prone areas need to address this early on.  The risks are real. 

This is going to be a reality even for the climate change deniers out there.  They may be able to ignore the science, but they will not be able to ignore the actuaries...

Jan 08, 2020 09:27 PM
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

Bob, this is a good article, with good advice! The most important thing is having a good and honest agent! A trustworthy, knowledgeable agent can save thehomeowner a lot of heartache!

Jan 08, 2020 07:27 PM
Laura Filip
Laura Filip Broker , Opening doors for All Seasons of Life - Whitesboro, TX
What can we do for you today?

Very helpful information. My first call would be to an insurance agent that I trusted to give me advice on home owner coverage needed.

Jan 08, 2020 08:16 PM
Kimo Jarrett
Cyber Properties - Huntington Beach, CA
Pro Lifestyle Solutions

Useful and informative post for those who didn't know and for those who knew it all but really didn't. Always good to refresh the knowledge of things past.

Jan 08, 2020 09:25 PM
Endre Barath, Jr.
Berkshire Hathaway HomeServices California Properties - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Rob it has been ages since we connected hope all is well wishing you a superb 2020, Endre

Jan 08, 2020 11:05 PM
Rob Spinosa

Altretttanto, amico mio!

Jan 09, 2020 07:12 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope 2020 is a great year for you.

Jan 09, 2020 01:24 AM
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 570-801-5525

Bob, excellent breakdown of insurance coverages for buyers and all homeowners.  Thanks for this clear, concise presentation that can easily be shared with client.

Jan 09, 2020 02:55 AM
Patricia Feager, MBA, CRS, GRI,MRP
Selling Homes Changing Lives

Rob - Congratulations on your feature! This is information consumers need to know. And I would advise two things: 1) Contact you; 2) Read the insurance policy.

I wish you all the best and many more featured posts on ActiveRain. 

Jan 09, 2020 04:20 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I spoke to a guy whose house was destroyed in California fires. His summation of what he learned: Buy as much insurance as you can before you need it....

Jan 09, 2020 06:37 AM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Great explanation for anyone who isn't sure about homeowners insurance.  I did NOT know that there is such a thing as earthquake insurance?!  And only 10% of CA owners buy it?! Wow!

Jan 09, 2020 09:50 AM
Nick Vandekar, 610-203-4543
Realty ONE Group Advocates 484-237-2055 - Downingtown, PA
Selling the Main Line & Chester County

Great recap of the required insurance coverages homebuyers may need. We all think we don't need this or that coverage. Only later do we fnd out we did, then it is too late.

Jan 09, 2020 10:28 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Rob these are good to the point explanation of each kind of insurance and their purpose.

Jan 09, 2020 12:56 PM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi Rob:

Great education here for homeowners. New buyers are often confused about the insurance and what is required,


Jan 11, 2020 12:52 PM