Buying a house can be an overwhelming experience. And once the ink dries on the closing documents and your stuff is moved in, you still have to get situated and make the house a home. One of the first things you'll have to decide is which type of insurance to purchase, although certain types of coverage are mandated by state law or as a condition to getting a mortgage.
This article focuses on home insurance regulation and insurance requirements as a condition for getting a loan. See Does Homeowner's Insurance Cover Natural Disasters? and Home Insurance Coverage Issues In-Depth for more information.
No federal regulatory agency exists to monitor insurance companies, so companies selling insurance are regulated by individual state agencies. These state regulatory groups are designed to assure that insurance companies operating in the state have the financial ability to pay claims. The state regulatory agency is typically empowered to take various actions against an insurance company that fails to conduct its business in a financially sound manner, including actions to prohibit the company from doing business in the state. (See a Listing of State Insurance Organizations)
Most states have laws regarding the conduct of insurance business to ensure lawfulness and fairness to insurance applicants and policyholders. State agencies can investigate complaints by consumers and sanction companies with unfair practices. State agencies also review policy forms used by insurance companies and rates charged for various types of insurance for compliance with state law.
Unlike car insurance, there is no law that requires a homeowner to have insurance. However, banks and lending institutions usually require that a borrower carry such insurance to protect the interest of the lender until the loan is repaid. A mortgage or deed of trust typically requires enough insurance to cover the repair or rebuilding of the house in the event it is destroyed. Mortgages can be structured so that the lending company pays the insurance directly, and the cost is taken out of the homeowner's monthly mortgage payment.