What is homeowner's insurance and is it required for a mortgage?

Homeowner's insurance (also called hazard insurance) protects your home and personal property against damage from fire, storms, theft, and other covered perils. Mortgage lenders require homeowner's insurance as a condition of the loan because the property secures the debt — if it is destroyed, the lender's collateral must be protected. Lenders typically require at minimum a policy that covers the replacement cost of the dwelling. Premiums are usually escrowed into your monthly mortgage payment. If you live in a flood-prone area, lenders may also require separate flood insurance. Coverage is not optional while your home is mortgaged.