What Is Another Name for Homeowners Insurance?
It's often called hazard insurance or homeowners (HO) insurance, the same coverage your lender means by "proof of insurance."
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Why your lender keeps saying hazard insurance
The loan paperwork and the closing agent probably say hazard insurance where you'd expect homeowners insurance. They mean the same policy. Lenders use that term because the part they care about most is the dwelling coverage, the money to rebuild the house if it burns down or gets hit by a storm, since the house is their collateral until the loan is paid off. The policy you buy still includes the rest, liability coverage if someone gets hurt on your property, coverage for your belongings, and so on. When your lender asks for proof of hazard insurance before closing, a standard homeowners binder satisfies that. Your declarations page will list dwelling coverage as one line among several, and the amount should match what it would cost to rebuild, not what you paid for the house.
Get the binder your lender needs
You need proof of coverage before closing, with dwelling coverage set to rebuild the house, not its sale price. Comparing policies now helps you land on that number without overpaying.
What dwelling coverage number should go on the binder
Your closing agent needs a specific dollar figure for dwelling coverage before they can issue a binder, and that number should come from what it costs to rebuild the house, not from the purchase price or the appraisal. A house on a small lot in a pricey neighborhood might cost far less to rebuild than it sold for. A modest-looking house with high-end finishes could cost more. Most insurers estimate rebuild cost using the home's square footage, age, construction materials, and local labor and material costs. You don't have to calculate this yourself. When you request quotes, the insurer or agent runs that estimate and proposes a dwelling coverage amount, which you can adjust if you know something about the house they don't, like a recent renovation.
Lenders sometimes have their own minimum, usually tied to the loan amount, and ask that dwelling coverage meet or exceed it. That minimum can be lower than the actual rebuild cost, especially if you made a large down payment. Meeting the lender's number isn't the same as being fully covered. If the rebuild estimate comes in higher than what the lender requires, it's worth carrying the higher amount. Underinsuring the dwelling means paying the difference out of pocket if the house is ever a total loss.
The binder itself is a short document, usually a page, that states the coverage is in effect as of a certain date. Title companies and lenders accept it as proof while the full policy is being issued. You'll need the insurer's name, the policy number, the dwelling coverage amount, and the effective date to match your closing date. Ask whoever sets up the policy to send the binder directly to the closing agent or lender. A delay here can hold up closing.
Once the house closes, if your loan has an escrow account, your lender collects a portion of the annual premium with each mortgage payment and pays the insurer directly when the policy renews. You'll still get a renewal notice, but you don't have to send a payment yourself. If there's no escrow, the renewal payment is on you, and missing it can lapse the policy without much warning.
Deductibles, escrow, and other terms on your policy
Your declarations page will list a deductible, the amount you pay out of pocket before coverage kicks in on a claim. A higher deductible lowers what you pay for the policy. A lower one raises it. Some policies split this into two numbers, a flat dollar deductible for most claims and a separate percentage-based one for wind or hail damage, common in areas that see hurricanes or hailstorms. Check which type applies before you pick a number. A percentage deductible is calculated against your dwelling coverage amount, so on a high-value home it can mean a much larger out-of-pocket cost at claim time than a flat deductible would.
Escrow is a separate account your lender sets up to collect money for insurance and property taxes along with your mortgage payment. If your loan has escrow, part of what you pay monthly goes into that account. The lender then pays your insurer directly each year when the policy renews. Escrow is common on loans with a smaller down payment and required on most FHA and VA loans. With a larger down payment, your lender may let you pay insurance and taxes yourself instead. That means one more bill to track but can make it easier to shop for a better rate at renewal.
Liability coverage and coverage for personal belongings also show up on the declarations page, usually as a percentage of the dwelling coverage amount rather than a number you choose directly. Liability covers costs if someone is injured on the property and sues. Belongings coverage, sometimes called personal property coverage, pays to replace things like furniture or electronics after a covered loss such as fire or theft. These amounts are often set automatically once dwelling coverage is chosen. You can usually raise them if you own things worth more than the default covers, like jewelry or a home office full of equipment.
None of this is required by any state law. Lenders require proof of homeowners insurance as a condition of the loan, not the state. That's why the requirement disappears once a mortgage is paid off, though most people keep the policy anyway. A standard policy won't cover flood damage or earthquake damage. Those need separate policies, and if the house sits in a flood zone, the lender will likely require flood insurance in addition to the homeowners policy before closing.
Before you lock in a binder
Check the dwelling coverage number against what the house would actually cost to rebuild, not the purchase price, and make sure the effective date on the binder matches your closing date.
