What Is Hazard Insurance?

By
Published date: Nov 30, 2015
  1944
 

hazard insurance home conceptThe home buying process can be a long and daunting process that involves quite a few steps. Things such as estimating your principal, taxes, interest, and insurance, along with the type of insurance you will need, are essential. In most situations, you would need to purchase hazard insurance to complete your home purchase.

Even though this type of insurance is necessary in many places, many people are unaware of its existence or why they might need it. If you own real estate, one thing you should absolutely invest in is hazard insurance. Many people are confused about hazard insurances and fail to understand why so many real estate properties demand them.

We want to clear the confusion and provide you with all the information you need to know about hazard insurances. What is hazard insurance, why do you need it, and how can you benefit from it? We are about to explore all these questions in this article, so stay tuned!

Hazard insurance explained

It wouldn’t be hard to understand what hazard insurance is, and you probably already had it figured out by now. Hazard insurance is designed to protect a property owner from the damage incurred by different kinds of hazards such as natural disasters, fire, storms, and more. Many lenders require you to have one in order to qualify for a mortgage.


Supposedly a homeowner has hazard insurance, and the specific natural disaster occurrences that often happen in the area are covered within the policy. If the natural disaster that occurs damages the property, the homeowner will be compensated for the damages. Even if a property is not in the high-risk zone, you can still acquire hazard insurance to protect your finances and home against the Acts of God.

Is homeowner insurance and hazard insurance the same thing?

showing an insurance policy

There is a common belief that hazard insurance is different from homeowner insurance, and you might be surprised to find out that it isn’t. The hazard insurance is included in the homeowner’s insurance coverage, and you might need a certain amount of coverage to get approved on a mortgage. Hazard insurance is not a separate coverage type, but it is part of a homeowners insurance policy.

With hazard insurance, you have coverage for your home’s structure only, and for other kinds of damages, you will be covered by the homeowner insurance. Since hazard insurance is a subsection of homeowner insurance, many of you might be wondering why so many refer to it separately? The reason why it became so common to refer to it individually is because of lenders. Most mortgage lenders may require at minimum hazard insurance to issue a loan since it is the only one that directly covers the home structure itself.

What does the home insurance cover?

Understanding what is and isn’t covered with hazard insurance can be confusing for many. You should also understand that affordable home insurances might not cover everything a lender might require to approve a loan. However, if you are uncertain of what your hazard insurance covers, it is all listed explicitly in the policy. Most importantly, hazard insurances need to cover structural damages from disasters that frequently hit the area where the property is situated.

For example, if you live in the mountains, you should be aware that winters might bring heavy snow amounts that can potentially damage your property. Be aware that not all hazard insurances are the same, and you should go through your homeowner insurance policy with your agent to see what risks or gaps your insurance might have. It is not uncommon for homeowners to purchase additional insurance to cover specific events.

Here are several categories of natural disasters that are covered by the hazard insurance:

  • Hail and wind damage
  • Fire and smoke damage
  • Lightning damage
  • Snow, sleet, or ice damages
  • Vehicle damages
  • Damage from fallen objects
  • Vandalism and burglary damage
  • Damages caused by electric currents or heating units

Any damage caused by natural disasters, outside of this specter, might not be covered by your hazard insurance, and most often than not you homeowners might need to acquire separate insurance. Other types might include, flood insurance, hurricanes, or wildfires.

Damages that are not covered by hazard insurance

african american covered his eyesYou need to understand that hazard insurance does not cover damages to personal property and injuries sustained. Keep in mind that the insurance only covers damage sustained by your property from disasters specific to the policy. More often than not, homeowners might need to purchase separate insurance from brokers for disasters that are not covered in the hazard insurance but frequently occur in the area you live.

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 specific 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. The same applies to regions with rising sea levels and increased flood risks. In many places, hazard insurance should be thought of as one of the fixed expenses of buying a house in addition to mortgage and property taxes.

Need help from a real estate agent?


Buy Sell Rent

I agree to receive FREE real estate advice.

Are you a real estate agent?


Residential Rental Commercial

I agree to receive FREE real estate advice.

How much insurance do you actually need?

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 standard 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 requires explicitly that the home buyer purchase hazard insurance. This is typically 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, and the likelihood of certain kinds of disasters occurring in that location. Some of those factors, unfortunately, can result in high premiums for the policyholder but rest assured that some of the most common insurance claims are covered by homeowners insurance.

 

Conclusion

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. Don’t forget that hazard insurance is part of homeowner insurance. Depending on your living conditions and needs, the hazard insurance may or may not include all the coverage you need.

Besides understanding what is hazard insurance, it is wise to find a real estate agent who can help you throughout the home buying process and with questions pertaining to insurance policies. Speak with your insurance agent and mortgage lender to ensure that you have the necessary coverage to protect your property.

What is your take on hazard insurance? Let us know in the comment section down below.

Have a question or comment? We're here to help.

 

*** Your email address will remain confidential.
 

Related Real Estate Advice and Tips

 

Real estate agents near you