By Eduardo Albuquerque
Published date: Nov 30, 2015
If you own real estate, one thing you should absolutely invest in is hazard insurance. Hazard insurance is designed to protect a property owner from the damage that can be incurred by different kinds of hazards such as natural disasters, fire, storms and more.
Insurance brokers offer hazard insurance because most regular property insurance policies don’t protect against all possible things that could damage a building or the land on a piece of real estate. This is especially the case for geographic locations that are prone to certain kinds of damage. For example, property insurance policies for land near California forests may not include coverage for wildfires. Property insurance policies in Florida may not include coverage for hurricanes.
If a person owns real estate in a certain area prone to certain kinds of disasters, separate policies will usually have to be obtained through insurance brokers. So when buying a house near a river, for example, a person would purchase one policy for the property itself and a separate one for flood protection. In many places, hazard insurance should be thought of as one of the fixed expenses of buying a house in addition to the mortgage and property taxes.
How much insurance should be purchased can vary, but it should be at least enough to cover the mortgage for that piece of real estate. However, it may not be necessary to purchase hazard insurance in all circumstances. When dealing with insurance brokers, make sure to inquire about the specifics of the regular property insurance policy you are purchasing. Some policies are more comprehensive than others and may already include enough coverage to protect against natural disasters, making additional policies redundant.
When a property owner is selling a house, the contract usually specifically requires that the home buyer purchase hazard insurance. This is usually a part of the closing process when selling a house to a home buyer. However, not every contract may strictly require hazard insurance. Property insurance or comprehensive coverage may be adequate if it can protect against specific things that can go wrong such as a fire or a natural disaster like a flood, earthquake, hurricane or tornado.
The premiums paid for hazard insurance are typically calculated based on the real estate’s appraised value. Other factors can include the age of the home or building, the methods used to construct the structure as well as the likelihood of certain kinds of disasters occurring in that location. Some of those factors, unfortunately, can result in high premiums for the policy holder.
Overall, a real estate owner needs to weigh the benefits of owning hazard insurance against the cost of owning a policy. If a certain kind of disaster is both possible and not covered by regular property insurance, it may be a sound investment.