A typical homeowner has multiple insurance policies beyond standard homeowners insurance. Some are optional, and some are mandatory, depending on your location and whether you have a mortgage. Some insurance policies protect you directly; others safeguard your lender.
Mortgage insurance protects the lender or investor against default from the borrower, says Anthony Guarino, vice president of public policy development and research at Genworth Financial Mortgage Insurance in Raleigh-Durham, N.C. The borrower pays the insurance premium, even though the lender is the beneficiary. Usually, the premium is added to the monthly mortgage payment.
Private mortgage insurance is required for conventional loans with down payments of less than 20 percent. Premiums vary according to the characteristics of the mortgage loan and the borrower, Guarino says.
"PMI was created because lenders were unwilling to make loans with a lower down payment because of the risk," says Guarino. "Without PMI, homebuyers would have to come up with a 20 percent down payment for their purchases."
Private mortgage insurance has a government counterpart: the Federal Housing Administration, which insures FHA loans.
Title protection
Title insurance protects the policyholder against claims about rightful ownership of a property. If you borrow money to buy a home, your lender will require title insurance.
"Title insurance for the lender is issued for the amount of the mortgage loan and only lasts until the loan is paid in full," says Jeremy Yohe, director of communications for the American Land Title Association in Washington, D.C. "The policy protects the lender to ensure the enforceability of the title."
Homeowners coverage
Homeowners insurance, also known as hazard insurance, is required by the lender if you have a mortgage. If you pay cash for your home, this insurance is optional, although financial experts recommend insuring your property against fire, theft and other potential losses.
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