Is Home Insurance Required in California?

Protecting your home with adequate homeowners insurance coverage is always a wise idea, but is home insurance required in California or merely recommended? While there is no statutory requirement for homeowners to purchase homeowners insurance in California it is often required by mortgage lenders as a condition of their home loan agreement. Residents in the Golden State have a few added concerns to consider, too, including natural disasters that are common and even unique to that area of the country, like wildfires, landslides, and earthquakes.

Here’s everything you need to know about buying a home insurance policy in California and what happens if you opt out of this protective coverage.

Key takeaways

• California homeowners aren’t required by state or federal law to buy insurance coverage on their property. 
• Mortgage lenders require you to carry adequate coverage to protect their collateral asset (your home). 
• If you fail to buy and maintain homeowners coverage, your lender will usually purchase force-placed coverage at your expense. If you don’t maintain this coverage, it could potentially lead to your mortgage going into default and potential foreclosure actions.
• Homeowners in California need to consider not only named perils when shopping for a policy but also risks like earthquakes and wildfires.
• In certain situations, California state law helps protect homeowners against policy non-renewal and cancellation, especially following a natural disaster.

Do you have to have homeowners insurance in California?

So, is homeowners insurance required in California? From a legal standpoint, no, there is no state or federal law mandating homeowners insurance coverage in California… or any other state for that matter. 

However, you are likely to find that homeowners insurance is required by your mortgage lender if you are still paying off the loan on your home. Home mortgage loans are secured using your home as collateral. For this reason, lenders want to secure their assets and reduce risk, so they will typically require you to carry a certain amount of home insurance coverage on the property until your loan is paid off. 

What happens if you don’t have home insurance in California?

If you’re required to purchase homeowners insurance by your lender and fail to do so, the bank will usually purchase force-placed coverage on your behalf. This insurance is designed to protect your mortgage lender, not you, and doesn’t come with many of the same benefits and protections as a standard home insurance policy. As the homeowner, though, you will still foot the bill for this policy, so it may even be more expensive than a standard policy.

Even if you don’t have a mortgage lender forcing you to buy coverage, failing to have home insurance in California can come with many repercussions of its own. If your home is damaged by a windstorm, fire, or even vandalism, you’ll be stuck covering those repair bills out of pocket. In a state prone to certain natural disasters, failing to buy home insurance — and even added coverage like wildfire insurance and earthquake insurance — could mean losing your property in a total loss with no financial recourse. Your lender could also put the mortgage loan in default and opt to foreclose on the property following a total loss. 

CA home insurance laws

There are some CA insurance laws surrounding home coverage, though they apply more to insurance companies than homeowners. 

For instance, Senate Bill 824 was signed in 2018 and prevents insurance companies from non-renewing homeowners who are affected by or live adjacent to a wildfire disaster area. Under this moratorium, carriers cannot non-renew existing customers for at least one year following a declared disaster, ensuring that homeowners don’t find themselves unexpectedly uninsured after a fire strikes their area. 

Once a homeowners policy has been in effect for 60 days, 

insurers in California are only legally allowed to cancel the policy for reasons specified by law, which include: non-payment of premium, fraud, material misrepresentation, or physical changes to the insured property that increase any hazard against which you’re insured. This also helps prevent homeowners from unexpected coverage cancellations due to disasters outside of their control.

If you’re unable to buy a policy in the open insurance market, California does have a state FAIR plan. FAIR plans give high-risk homeowners — such as those in areas prone to wildfires — access to insurance coverage through partner carriers.

Are there any tax implications associated with homeowners insurance in California?

There are no unique tax implications when it comes to homeowners insurance in California. As with other states, homeowners insurance premiums are not tax-deductible on your primary home. If you have a rental property or a dedicated home office, home insurance premiums may be partially deducted as a business expense.

If you receive a home insurance payout due to a covered loss, the proceeds are not considered taxable income unless you’re given more than the original cost basis of that real estate. In that case, you may be subject to capital gains taxes on the difference between what you paid for the home and what your insurance company paid you after the loss. 

Tips for purchasing homeowners insurance in California

Homeowners in California can explore options to find a homeowners insurance policy that best meets their needs by considering the following tips:

• Determine your level of coverage. How much coverage your dwelling needs depends on where it’s located, how much it’s worth, and what level of peace of mind you want. This might mean buying a higher coverage limit than your outstanding mortgage balance or even your home’s appraised value. Don’t forget coverage for your personal belongings and personal liability protection, either.
• Consider all of your home’s potential risks. Most home insurance policies protect against standard perils like fire, windstorms, hail, lightning, explosions, vandalism, and the like. Your insurance company may also offer things like flood insurance, water intrusion and sewer backup coverage, and mold insurance. In California, you might also want to consider wildfire, earthquake, or even catastrophe insurance to cover against certain added perils.  
• Set your budget. Proactively calculating how much you can afford to spend on homeowners coverage each month can help you determine which carriers (and coverage options) are right for you as you’re shopping around. 
• Shop around. It’s always wise to get quotes from more than one carrier when buying a new policy. You can request quotes through individual companies or use a platform like Hippo to get quotes from multiple companies easily.
• Look at more than just rates. Your quoted premiums are important but shouldn’t be the only factor you consider when choosing a carrier. You should also look at things like industry rankings, AM Best ratings, NAIC reports, and customer satisfaction ratings.
• Get quotes often. Even if you’re happy with the policy you buy, you should still shop around regularly to make sure it’s still the right fit and the best possible price. Some homeowners choose to shop annually when it’s time for their coverage to renew.

Still have questions?

Want to know even more about buying homeowners insurance coverage in California and what your requirements are from the state and your mortgage lender? Here are some of the most frequently asked questions. 

What insurance is mandatory in California?

Homeowners insurance coverage is not mandatory in California from a legal standpoint but may be required by your mortgage lender if you are still paying off your home loan. Be sure to check with your lender to see what level of coverage you’re required to purchase and build a protective policy from there.

Do I need home insurance in California if my house is paid off?

You won’t be required to buy home insurance if your California home is paid off. However, carrying adequate homeowners coverage will protect your asset from potential loss due to perils like fire, wind, hail, lightning, and even explosions. You can also purchase added coverage to protect against common natural disasters in California, like wildfires, landslides, mudslides, and earthquakes.

Why is California home insurance so high?

As a state, California is prone to many severe disasters that can destroy homes and property as well as displace residents. Since 1980, there have been 46 total disasters in the state of California, with losses totaling over $1 billion each. This is in addition to other smaller disasters with damages in the tens and hundreds of millions, which means insurance carriers have taken a big hit in the state in recent decades.

Is there a grace period for homeowners insurance in California?

California homeowners insurance companies provide a grace period for premium payments, typically 30 days, but the length can vary depending on the insurer’s policy. However, in the event of a natural disaster or a declared state of emergency, insurers are required to extend the grace period to at least 60 days.

What states have mandatory homeowners insurance?

There are no mandatory homeowners insurance laws statewide or at the federal level. Homeowners may be required by their mortgage lender to purchase coverage, especially in areas with specific natural disaster risks, like owning a home with a federally-backed mortgage in a FEMA 100-year flood plain.