Do I Need Homeowners Insurance For A Townhouse?

Homeowners insurance is as important to someone living in a townhouse as it is to any other homeowner and, if you have a mortgage, your mortgage lender will require that you maintain a policy to cover their financial exposure. If you fail to maintain the proper level of homeowners insurance on your dwelling the company holding your mortgage is within their rights to mitigate the risk of losing their financial investment by taking out insurance for you and having you charged for it.

There are several negatives to this process, called force-placed insurance, including:

• The coverage with force-placed insurance will have fewer benefits than regular homeowners insurance and may not pay any benefits to you for loss of your personal property. It may only cover the dwelling itself, protecting only your mortgage lender's interests.
• Force-placed insurance will usually cost more than the homeowners insurance you could buy for yourself. Plus, your mortgage lender's transfer of the cost will increase your monthly mortgage payment.
• By letting your insurance lapse you will have created a black mark on your insurance history, labeling you as an undesirable insurance risk for any future insurance you try to obtain. This will make your future insurance purchases more expensive because of your higher risk.

A Townhouse is a House

Even though your townhouse may be located in a community where the homeowner's association (HOA) maintains a master policy that may cover common areas such as the swimming pool and the recreation center, that policy wouldn't pay for your loss if, say, you had a fire that destroyed your property. Homeowners insurance is meant to pay for losses suffered as a result of any covered peril such as fire, burglary, windstorm and vandalism, to name a few. It covers not only the structure itself but also the appliances, electronics, clothing, jewelry, artwork and other personal possessions found within the structure. It also adds liability coverage in the event that someone visiting you gets injured and sues you in court or incurs medical expenses.

It should be noted that, just as in any homeowners insurance policy, there may be clearly defined limitations on the amount that will be paid on claims for the loss of expensive items such as furs, jewelry, artwork and other high-priced collections such as coins or stamps. These items may be covered fully, but it would require a special endorsement.