Key takeaways
- Lenders typically require proof that a property insurance policy is active on your closing date before advancing funds, so a gap here may delay closing.
- A standard policy generally covers four core things: dwelling (rebuild cost), contents, personal liability, and additional living expenses — each subject to the policy’s terms, limits and exclusions.
- Dwelling coverage is usually based on the cost to rebuild, not the price you paid for the home.
- Ask about add-ons many policies leave out, such as water/sewer backup and overland flood. Condo buyers generally need a “unit-owner” policy.
Why does my lender require home insurance?
Because the home is the lender’s security for the loan, it generally wants to know the property is protected. As a lending condition, a lender typically requires proof of property insurance (sometimes called home or fire insurance) that is effective on your closing date before it will release the mortgage money.
If that proof isn’t in place, your lawyer generally cannot confirm this condition to the lender, the funds may not be advanced, and your closing can be delayed.
The policy is usually also required to name your lender. That way, if the home is damaged or destroyed, the insurance helps protect the lender’s stake in it too — subject to the policy’s terms, limits and exclusions. This is one of the standard conditions your lawyer typically confirms as part of following the lender’s mortgage instructions.
Because of the deadline, it’s generally wise to arrange your insurance well ahead of closing, not the day before. You’ll usually need a document from your insurer (often called a binder or confirmation of insurance) that your lawyer can send to the lender.
Property insurance is not the same as title insurance. Property insurance may be required by your lender and covers physical loss or damage to the home; title insurance is generally optional and covers different risks (such as title defects or survey issues). The two are not interchangeable, and one is not a substitute for the other.
What does a standard home insurance policy include?
A typical home policy commonly includes four broad coverage categories. Together they may protect the building, belongings, legal responsibility to others, and additional living costs after a covered loss—in each case subject to the policy’s wording, limits, deductibles and exclusions.
- Dwelling / building coverage. May cover the cost to repair or rebuild the physical home after a covered loss. This should generally reflect the cost to rebuild your home, which is not the same as its market price. A home can cost far more or far less to rebuild than you paid for it, so don’t assume the two figures match.
- Contents / personal property. May cover your belongings inside the home, such as furniture, electronics, appliances you own, and clothing — subject to the policy’s terms, limits and exclusions.
- Personal liability. May protect you if someone is injured on your property, or if you accidentally damage someone else’s property, and you’re found legally responsible — subject to the policy’s terms, limits and exclusions.
- Additional living expenses. May help pay for temporary costs, such as somewhere to stay, if a covered loss makes your home unliveable while it’s repaired — subject to the policy’s terms, limits and exclusions.
Here’s a quick summary of what each core coverage generally does (subject to the policy’s terms, limits and exclusions):
| Coverage | What it may protect | Good to know |
|---|---|---|
| Dwelling / building | The structure of your home | Usually based on rebuild cost, not purchase price |
| Contents / personal property | Your belongings inside the home | Furniture, electronics, clothing, and more |
| Personal liability | You, if you’re responsible for injury or damage | May cover claims made against you |
| Additional living expenses | Your costs if you’re displaced | Generally applies after a covered loss forces you out |
When you get a quote, ask your insurer or broker to walk you through how each of these limits was set, especially the dwelling amount, so you’re confident the coverage matches your home.
What add-on coverages should I consider?
A standard policy is a starting point, not the full picture. Some risks that homeowners worry about most are often not included by default and may have to be added. Two common examples:
- Water and sewer backup. May cover damage when water backs up into your home through drains or sewers, which many standard policies exclude — subject to the policy’s terms, limits and exclusions.
- Overland flood. May cover water that enters your home from an overflowing body of water or heavy rain and runoff at ground level, which is also commonly excluded from a base policy — subject to the policy’s terms, limits and exclusions.
Whether you need these generally depends on your home and its location. Ask your insurer or broker directly what your policy does and doesn’t include, and whether these add-ons make sense for you. It’s usually better to have that conversation before you buy the policy than after a loss you assumed was covered.
What kind of policy do I need if I’m buying a condo?
If you’re buying a condominium, you generally need a different type of policy, usually called a unit-owner or “condo” policy. That’s because responsibility for insurance is typically split between you and the condo corporation.
- The corporation generally insures the building itself, including the common elements shared by everyone.
- You typically insure your unit’s interior, your own belongings, and your personal liability.
A unit-owner policy is designed to help fill this gap. It typically covers things like improvements and upgrades inside your unit, your contents, your liability, and additional living expenses, without duplicating what the corporation already covers on the building — in each case subject to the policy’s terms, limits and exclusions. When you get a quote, tell the insurer it’s a condo so they set you up with the right kind of policy.
How do I make sure my insurance is ready in time for closing?
It’s generally best to treat home insurance as an early task, not a last-minute one. Because a lender typically won’t release funds without proof of coverage effective on the closing date, this is genuinely part of getting to a successful closing.
A simple approach:
- Shop early. Contact an insurer or broker as soon as your purchase is firm, so you have time to compare coverage and ask about add-ons.
- Match the effective date to your closing date. The policy generally needs to be active on the day ownership transfers, not the day after.
- Name your lender. Give the insurer your lender’s details so the policy names them, as lenders usually require.
- Get written proof. Ask for a binder or confirmation of insurance and pass it to your lawyer so it can go to the lender.
- Confirm it’s active. After closing, double-check the policy is in force before you rely on it.
Your lawyer will typically confirm the insurance condition to the lender, but the coverage itself is yours to arrange. The sooner it’s sorted, the fewer surprises at the finish line.