Does homeowners insurance pay off your mortgage if the house is lost?

UPDATED: May 27, 2010

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UPDATED: May 27, 2010Fact Checked

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Asked May 27, 2010

1 Answer


In most cases, homeowners insurance will pay to rebuild the home and replace the insured property lost along with it. However, unless your policy specifies property replacement, the insurance company is only obligated to payout the amount of the policy, which may be significantly lower than the value of your home. It is up to you to make sure that you are purchasing a policy with ample monetary value. You will still have the same mortgage as before the incident, but will have a new home, which could very conceivably make your mortgage look a lot better than the old home did.

Bear in mind that your mortgage covers the home, any other buildings on the property, and the land itself. While most homeowners policies cover the home and other buildings, they do not provide any sort of coverage for the actual land. Because of that, even if your full home value were paid out, there would still be an amount left owing on the mortgage, and you would be without a home because your insurance paid off a portion of the mortgage instead doing what you bought it for: protecting you and your family from hardship.

There are policies available that cover the mortgage on the home. If you fail to carry homeowners insurance, your mortgage company can take on this type of coverage to your mortgage payments, and some companies include a diminishing policy of this sort as part of the original mortgage, protecting their investments. For you, the problem with type of coverage is that pays off your mortgage, but offers you nothing to compensate for the loss of your home, your possessions, or the money you must spend for temporary housing and other necessities. Combining this coverage with regular homeowners insurance is your safest route, but some insurance companies will not allow this type of double coverage, and most homeowners prefer to have a single insurance payment.

Answered May 27, 2010 by Anonymous

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