Will depend on the contract.
I got earthquake coverage when I lived in southern Illinois; I was close enough to the New Madrid Fault that I felt it wasn’t a bad idea. It was about $30 a year.
And something a little more official:
Um wow. US insurance companies must really suck. This isn’t my experience at all. I’ve made claims on my home insurance for minor things and it hasn’t even affected my premiums, let alone caused a cancellation.
Here in the UK, a large part of the cost of a property is often the land on which it sits. So buildings insurance works off the rebuild cost - how much it would cost to rebuild the property - which is often much less than the price paid. Is it the same in America?
IIRC every state except New Hampshire requires insurance. But while under a loan, they will likely require more insurance than the minimum. You will have collision and comprehensive, but you don’t need to have these for an old car. Depending on state, you’ll probably only need the minimum liability, maybe a few other things.
Here in the UK, wildfires are not a big risk, but flooding is. Or at least it has become so, this century in areas that were no great problem 30 years earlier.
The outcome has been that people who live in areas deemed to be ‘high risk’ have seen their premiums soar and can often find themselves tied to a single insurer. Every time there is a major inundation we see stories of all those poor folk who have been made temporarily homeless and have no insurance. They often get help from charities etc and this can cause resentment from neighbours who had been paying premiums for years.
This happened in a street near us. You may think that the name of the street - Watery Lane - and the stream at the end, might have been a clue to the potential risk, but it had not been flooded since the 1950’s so many of the householders, some quite elderly, had economised by not paying for buildings insurance.
Flooding, of course, does not generally destroy a house as fire does, and anyone with a mortgage would have sufficient cover to rebuild in the event of a fire. If, in some way, they rendered the insurance invalid (arson?) they would then become personally liable and most likely bankrupt.
I was in a multi-car accident once where I was not at fault. The adjuster looked at my car and called me. There was some very minor damage that couldn’t be explained by the accident. I told him I’d grazed a deer months ago and never reported it as the damage was minor and cosmetic. I didn’t want anything done with the dent.
When I got my vehicle back, everything was repaired. I then got a cancellation notice due to too many claims in a short period.
Most people think that if there’s an accident and they don’t make a claim for something (pay for the repair yourself, or don’t repair it), it’s as though it never happened. But that’s not so. You probably had an obligation to report the prior accident.
And this is quite reasonable. Insurance companies care about future risk, and their models use your driving history to estimate that. If an event is part of your driving history, the issue of whether or not you claimed for the event isn’t relevant.
Any such obligation would be in the contract. I’ve never seen an auto policy with a requirement like that.
The US “Free Market” coupled with various mandatory insurances allows for some very shady insurance policies, like the “health insurances” that mathematically could never pay back their premiums. These were outlawed under the ACA, but are being rolled back in under the new administration. Similarly, the requirement to insure houses and cars has spawned a lot of “insurances” that are mostly insurance in name only. In my experience, the big-name, reputable insurance companies don’t act like the ones described here: I’ve never had my insurance cancelled for making (or inquiring) about a claim, not even the dreaded ‘rate increase’ from an auto accident, and I’ve been insuring houses, cars, and my health for several decades now.
If you think that’s bad, try getting a mortgage on a house in Quahog, RI without first getting volcano insurance.
IANAL but AFAIK ‘non recourse’ just says the lenders can’t make claims against assets which were not pledged as collateral for the loan. It doesn’t depend on the value or condition of the asset which was specifically pledged as collateral, ie the property.
As a bunch of people have said, lenders who take collateral which could be lost in an accident, fire, etc. almost always require the asset to be insured. I think we’re still waiting for cites of cases or places where banks would extend mortgage loans on properties on which it’s ‘impossible’ to get fire insurance. It’s kind hard to imagine that, what kind of competitive frenzy by banks would cause such an obvious give away to borrowers.
However ‘non-recourse’ is not a wholly uniform concept in all places and cases. State laws vary and it’s not necessarily exactly binary. Also I know first hand that in commercial property lending ‘non recourse’ has certain ‘carve outs’ where the lender can come after individual assets. For example a lender will typically retain the right to go after the assets of the managing member of a property LLC if the LLC defaults on the mortgage due to fraud by the managing member. In commercial loans it can be negotiated case by case. For individual mortgages it tends to be more uniform according to state law. But varies by state.
Will I have enough money left over for handsome cream?
I guess their strategy works with large numbers, but not in our household. I found other (cheaper!) insurance and have had zero claims in the 12 years since. Meanwhile, around the same time, my gf got a letter from her insurance company (State Farm, IIRC) congratulating her for a lifetime of zero claims with them. They promised to not raise her rates ever. She immediately totaled her newish SUV, then had another claim a month or two later.
This has absolutely nothing to do with the situation at hand. You can’t get a mortgage without the property (structure) being insured. The lender is listed as an additional insured. Insurance is paid a year in advance and is generally escrowed. If your insurance lapses for whatever reason, the lender will take out a policy and add it to your mortgage payment. They absolutely will not allow it to be uninsured. It’s a condition of your loan.
If your house burns down, the insurance company pays to rebuild it. You keep paying your mortgage as usual. Nothing changes. If you default on your loan, your lender will make sure the insurance is paid to protect their investment.
If you paid cash for your home and chose to not insure it, that’s on you. You’re on your own.
Yes, they will require liability on the property but replacement on the structure. The land doesn’t get replaced.
Even if everything you write is true, the question of non-recourse is still relevant. Plenty of people with mortgages in California are insured, but also underinsured.
Here’s a story from just a few months ago, noting that a significant number of people who lost homes in earlier fires “reported being underinsured by an average of $317,000.” That is, the insurance they have doesn’t cover the full cost of replacing the home, partly because insurance companies themselves often undervalue houses to keep premiums competitive, and partly because the insurance they have often takes inadequate consideration of factors such as “fees for permitting, architects, labor and zoning.”
If you found yourself in such a situation, there might be cases where it would be worth it to walk away from the mortgage. Sure, the lender might still be paying for insurance, but it doesn’t change the fact that, in some cases, the lender could go after you for any shortfall, whereas they cannot in a non-recourse state like California.
We could have a whole other discussion on force-placed insurance, which is a necessary component of the housing industry, but which some banks and insurance companies, operating in cahoots, also abuse in order to provide over-priced, substandard insurance, often to people who don’t need it or who have already bought their own.
Being under insured will not be a problem for the bank. Assume you purchased a home and have a $300,000 loan on it. Your insurance is for enough to rebuild when the loan was taken out, maybe $250,000. Time passes building costs go up. Now it would cost $400,000 tp rebuild after a fire. You are under insured and insurance will pay only $250,000. YOu walk away.
Insurance writes check to bank for the amount of the loan. If the loan balance is under $250,000 bank is paid off and happy. YOu now own the land and get the difference. If the loan is still more than $250,000 bank gets $250,000 and forecloses on the land. They sell the land for enough to pay off loan and expences, you get nothing.
Apart from insuring the risk of damage, UK lenders also include life insurance so that if the mortgagee dies, the balance will be paid up automatically and the burden will not fall on the heirs. Is this the same in the USA?