Why Is Home Insurance Mandatory? 
Homeowners insurance is mandatory because the house is thecollateral on the debt that you owe the lender . If you did n't pay your mortgage then the bank has the right to foreclose on your property and sell it to recoup the money that they lent you . The lender protects their collateral by being listed on your homeowner policy as `` Loss Payee '' . -LRB- The one paid when a loss happens -RRB- . If their collateral -LRB- your home -RRB- burns up in a fire , and then someone stops paying their mortgage , they would have no asset and no mortgage payments coming in . Item of note : If you decide that you do n't want to have homeowners coverage on the home , the lender can add insurance -LRB- that only protects their interest in the home -RRB- and make you , the homeowner/mortgagee , pay for it on top of their mortgage payment . It is one of the many clauses that you initialed when you signed your mortgage agreement . 