Do you need homeowners insurance before closing?
Yes, if you have a mortgage. When to buy, how the first premium is paid at closing, and what an insurer's inspection after closing can check.
Updated · By 
Ben Sikes
Do you get homeowners insurance before or after closing?
If you have a mortgage, you need homeowners insurance before closing, so start getting quotes the day you sign the contract. Travelers says there is "no law that requires home insurance," but "mortgage lenders do require you to get home insurance coverage before they will agree to finance your home purchase." If you pay cash, Progressive says you may not have to show proof, but Travelers warns you may pay for any damage out of pocket.
Key takeaways
- Farmers tells buyers to show proof of insurance at least three business days before closing. Ask your lender for your real date.
- Insure the rebuild cost, not the price. If your policy has an 80% coinsurance clause, Liberty Mutual says an underinsured home can get a reduced payout on any covered claim, not just a total loss.
- Progressive says an insurer may inspect the house after your policy starts, and a bad result can mean a higher rate or a canceled policy.
How long before closing should you get homeowners insurance?
Buy homeowners insurance early enough to have proof in hand before your lender's deadline. Travelers says starting at contract gives you time to compare quotes and "get your policy in place before closing." Buying is quick. Travelers says a policy can take a few hours if you're in a hurry, depending on the property, and otherwise "typically takes one to three days."
Farmers says to show proof at least three business days before closing, and some insurers may want it as far ahead as 15 days. It also notes your policy "won't go into effect until you close, but it needs to be in place." Progressive says your loan specialist will tell you when to buy.
Ask your loan officer two things: which document counts as proof, and the date they need it. Your contract sets the closing timeline, so confirm the dates with your agent.
What happens if you don't have insurance?
Progressive says you're often required to show proof to your lender "before they'll relinquish the keys to your property and fund your home loan."
The rule doesn't end at closing. The Consumer Financial Protection Bureau (CFPB) says that if you drop coverage, your lender can buy a policy and charge you for it, after advance notice. That policy "may only cover the lender, and not you," and may cost more than one you'd buy yourself.
A standard policy also has gaps. The CFPB says it doesn't cover earthquakes or floods. Travelers says your lender may require that extra coverage, depending on where the home is.
How much does homeowners insurance cost at closing?
The cost depends on the house, so the only real number is your quote. Your Loan Estimate lists the cost on page one, under "Projected Payments," the CFPB says. It also says you can shop separately and pick your own insurer.
How you pay at closing depends on escrow, the account your lender uses to pay your insurance bill for you. Travelers says you'll typically need to prove at closing that you've paid the first full year. With escrow, Progressive says most lenders also collect roughly 10% to 20% of the annual premium in your closing costs and put it in the escrow account for the next bill. Ask your loan officer what your loan needs at closing.
What is the 80% rule in homeowners insurance?
Liberty Mutual says your home should be insured for at least 80% of its total replacement cost. Fall short, and it says your insurer may pay only part of a covered claim. Here is its example, worked through:
| Amount | |
|---|---|
| Limit the rule requires | $320,000 |
| Rebuild cost | $400,000 ($320,000 ÷ 0.8) |
| Limit the owner carries | $240,000 |
| Share of the required limit | 75% ($240,000 ÷ $320,000) |
| Paid on a $50,000 loss, before the deductible | $37,500 (75% × $50,000) |
Ask your insurer whether your policy uses this rule and what percentage it requires.
What should you ask your insurer before you close?
Ask these before you buy the policy:
- Is the dwelling limit based on rebuild cost? Market value includes the land, and Liberty Mutual says land isn't part of the rebuild.
- Is the deductible a dollar amount or a percentage? Progressive's example: a 2% deductible on $150,000 of dwelling coverage means you pay $3,000 of a $7,000 wind claim.
- Do I need a separate flood or earthquake policy here? Ask your lender whether it requires one, then get the insurer's price.
- Will you inspect the house, and which findings change the policy? Bring your inspection report and ask about each roof, electrical, plumbing, or water damage line.
That last question matters most while your inspection window is open. If the insurer says a finding affects coverage, you can still ask the seller to deal with it before you own it.
Kept prices every line of an inspection report for $79, usually under 4 hours.
Why does the insurance company inspect after closing?
Progressive says the inspection helps the insurer "assess the replacement cost and risks associated with a new homeowners insurance policy." Its page says it can be a drive-by look at the exterior or a visit inside, "typically within a few weeks after your policy begins." Progressive says these inspections aren't always needed and are "done at your insurer's discretion."
Progressive lists what its inspectors look for:
- Electrical, plumbing, roof and structure, and HVAC (heating and cooling)
- Water damage, structural cracks, and rot or decay
- Animal or insect infestation, inadequate ventilation, and mold or mildew
- Safety features "such as smoke alarms, fire extinguishers, and anti-theft devices"
Progressive notes the same areas apply to a full buyer's inspection. Read your report against this list before closing.
What if the insurer finds a problem after closing?
Progressive says inspections usually end one of three ways: the insurer keeps your policy, changes it, or cancels it. Its page says your rate may rise if the home differs from your application or costs more to rebuild than expected. In the meantime, you're "typically covered under a tentative policy."
Progressive says cancellation is possible "if significant issues crop up, such as a safety hazard or a roof that needs replacement." It adds that insurers often give you a set period to fix the problem. Miss that deadline without proof of the fix, and "your insurer may issue a cancellation notice."
If that happens, line up a new policy before the old one ends. Progressive warns that "any new insurer will likely want to conduct a home insurance inspection," and the same issues "are apt to resurface." If your report already shows a roof near its end or a safety hazard, weigh it now. When to walk away after a home inspection covers how.
Can you refuse a home insurance inspection?
You can, but Progressive says "the insurance company may be able to cancel your policy or opt not to renew it" if you don't cooperate. Ask your insurer what declining would mean for your policy.
How do I know what the problems on my report will cost?
For the big problems on your report, get written bids: a roofer's for the roof, a licensed electrician's for electrical hazards. For the rest, a priced line on your report gives you a number to bring to the seller.
If a roof, wiring, or water damage line worries you and your window is still open, upload your report to Kept and negotiate with a price behind each request.
Sources
- Travelers, Do I Need Homeowners Insurance and When Should I Buy It?
- Farmers, When Should I Get Homeowners Insurance?
- Progressive, How to buy homeowners insurance for the first time
- Progressive, Home Insurance Inspection: What to Expect
- Consumer Financial Protection Bureau, What is homeowner's insurance? Why is homeowner's insurance required?
- Liberty Mutual, What is the 80% rule for home insurance?
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