Is Homeowner's Insurance Mandatory in the State of Illinois?
- In Illinois, most bank lenders will require you to purchase homeowners insurance before they will sign off on your mortgage loan. You are in control when it comes to the type of coverage you want, such as possession protection, which replaces or repairs any personal items inside your home after a disaster; liability, which covers medical bills and court costs if a person other than you or your family is injured in your home; and relocation expenses, which pays for moving costs and temporary housing while your home is being repaired after a disaster. Once the loan is signed, your bank lender is considered a mortgagee, which means that they are equally tied to the homeowners insurance policy over the life of the loan.
- If you do not pay your homeowners insurance premiums on a mortgaged home and there is a lapse in coverage, your bank lender can add his own structural-only insurance policy, which is known as a "dwelling fire form." This type of coverage will come with an increased premium and limited protection, as it only covers the physical structure of the home from limited perils. Your personal possessions, liability and medical payments are also not covered with a dwelling fire form. To reverse this lender-enforced alternative, you will need to re-insure the home with a new homeowners insurance policy that must remain active until your mortgage is paid off.
- Illinois bank lenders may require more than just homeowners insurance when you sign a home mortgage loan. PMI, or private mortgage insurance, may be added to your monthly mortgage payment if your loan down payment is less than 20 percent of the purchase price of the home, according to the Illinois Department of Insurance. Another insurance requirement that is tacked onto your mortgage is title insurance, which is often paid as a one-time fee at the start of your loan and covers the lender if any title errors occur.
- If you want to insure your home, but you cannot afford or acquire the coverage, the Illinois Legal Aid website recommends the Illinois FAIR, or Fair Access to Insurance Requirements Plan, run by the Illinois FAIR Plan Association. Illinois is one of only 32 states to offer this high-risk pool insurance that can also save you money with a state-certified insurer. Another option is a surplus line company, but these insurers are not certified by the state and will charge you a higher premium if your risk factors are high. For a link to the Illinois FAIR Plan website, see Resources.