Homeowners insurance, also known as hazard insurance, protects your home against unforeseen circumstances, like a fire or a burglary. Standard policies do not protect you against natural disasters like earthquakes or floods. However, it is possible to add this coverage to your policy if you desire. Homeowners insurance is not the same thing as mortgage insurance. Homeowners insurance only protects your property. Generally, homeowners pay for the insurance policy through an escrow account. Escrow accounts are great because they break up large expenses like an insurance premium into small easy monthly payments.
When you apply for a mortgage, the lender wants assurance that the subject property is protected by insurance. This is so that if the property burns down, the lenders interest in the property is protected and their losses are minimal. If you do not have homeowners insurance or fail to make your monthly payment, the lender is allowed to purchase a forced place insurance policy and charge you for it. However, your lender must give you advance notice. Forced placed insurance policies are more expensive than standard policies and they only protect the lender.