What does "Insurance required" mean in real estate?
“Insurance required” in real estate means a mortgage lender, landlord or contract party mandates one or more insurance policies to protect the property and the party’s financial interest. Most commonly this refers to homeowners insurance, but it can also include flood insurance, landlord or commercial policies, liability coverage, or other specialized coverages depending on the property and risk.
Why lenders and contracts require insurance
Lenders require insurance because the mortgage is secured by the property. If the property is damaged or destroyed, insurance protects the borrower’s ability to rebuild and the lender’s collateral. Leases and commercial contracts require insurance to allocate risk between landlords and tenants and ensure injuries, negligence or property damage are covered.
Common real-world requirements
- Proof of a homeowner policy before closing: Mortgage lenders typically require an active homeowners insurance policy and the lender named as a loss payee.
- Minimum perils and coverage: Policies often must cover standard perils (fire, wind, hail, civil commotion) and may require replacement cost coverage rather than actual cash value.
- Escrow payment of premiums: Homeowners frequently pay insurance premiums monthly through an escrow account managed by the lender to ensure continuous coverage.
- Location-specific policies: Properties in flood zones commonly require separate flood insurance because standard homeowner policies don’t cover flooding.
- Commercial and rental properties: Leases and loan documents often require general liability, commercial property insurance, or landlord insurance with minimum limits and proof of coverage.
How requirement language typically appears
Contract language can be explicit—stating the type of policy, minimum coverage limits, named additional insureds, and proof timelines—or general, giving the lender the right to require insurance “in form and amount satisfactory” to them. Lenders may also reserve the right to purchase insurance on the borrower’s behalf (force-placed insurance) if the borrower fails to provide acceptable coverage.
Consequences of not meeting "insurance required"
- Delay or denial of loan closing.
- Lender-purchased force-placed insurance at higher cost and with limited benefits.
- Breach of lease or loan covenants, potential default or penalties.
- Out-of-pocket exposure for losses not covered by inadequate or missing policies.
Quick checklist when you see "insurance required"
- Confirm which policy types are required (homeowners, flood, landlord, liability, etc.).
- Verify minimum coverage amounts and whether replacement cost is required.
- Name the lender or landlord as required (loss payee or additional insured).
- Provide the insurer’s declarations page to the lender/landlord before closing or occupancy.
- Set up escrow payments if required and keep policies active for the loan term.
Contract examples
- Mortgage: “Borrower shall maintain homeowners insurance covering the property, with the lender named as loss payee, for the duration of the loan.”
- Commercial lease: “Tenant must carry commercial general liability insurance and provide certificates of insurance listing landlord as additional insured.”
- Flood zone: “Flood insurance required per federal regulations; must be maintained for the life of the mortgage.”
FAQ (short)
Who pays for required insurance? The borrower or tenant pays premiums. Lenders may collect them via escrow.
Can a lender force you to buy insurance? Yes—if you fail to provide required coverage, a lender can purchase force-placed insurance and charge you.
Is replacement cost required? Many lenders prefer or require replacement cost coverage because it better protects rebuilding value versus actual cash value.
Bottom line
“Insurance required” in real estate signals mandatory insurance to protect the property and the financial interests of lenders, landlords, and tenants. Requirements vary by loan type, property use and location risk, so review contract language carefully, provide the insurer’s declarations page before closing or occupancy, and maintain continuous coverage to avoid higher costs or contractual penalties.
