What is Hazard Insurance?
Hazard insurance is coverage that protects a property owner against damage caused by fires, severe storms, earthquakes, or other natural events. As long as the specific weather event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred. Typically, the property owner will be required to pay for a year's worth of premiums at the time of closing, but this will depend on the exact details of the policy.
How Hazard Insurance Works
Hazard insurance protects a property owner against damage caused by fires, severe storms, earthquakes, or other natural events.
In high-risk areas, some weather-related activity is excluded from homeowners' insurance. For example, Florida is prone to hurricanes and is, therefore, considered high risk. If a homeowner lives in a high-risk area, he or she may need a separate policy, such as a flood insurance policy, which is a type of hazard insurance.
- Hazard and homeowners insurance are two different types of coverage.
- Hazard insurance policies pay homeowners when their properties have been destroyed or damaged by natural weather events like floods, tornados, and fires.
- Who needs hazard insurance? One example: homeowners who buy properties in coastal areas and are at risk for damages from floods.
As severe weather events like hurricanes, floods, and wildfires become more commonplace across North America due to extreme shifts in weather patterns, hazard insurance may become necessary for more homeowners.
Whatever the hazardous conditions may present risks to a home, homeowners should be sure those specific conditions are covered in their insurance package. If a homeowner has a mortgage, the lender will likely require minimum hazard insurance to protect its investment. The type and level of protection required will depend on the laws of the local municipality, and the requirements from the mortgage lender.
A typical property or homeowners' insurance policy usually won't cover all activities that could damage property.
It is much better to pay the upfront costs of extra hazard insurance than deal with the associated legal and medical problems out-of-pocket. Part of being a responsible homeowner is being prepared for every contingency.
The home is the primary place for accidents occur, and both homeowners insurance and hazard insurance are critical to enable a homeowner to weather the storm of unexpected accidents. If someone is spending hundreds of thousands of dollars on a home, it's a smart decision to spend a few hundred dollars more per year to properly insure the investment.
The amount of hazard insurance required depends on what it would cost to replace the home in the event of a total loss. This dollar amount may differ significantly from what the property's value on the current real estate market. Policies are typically written for one year and are renewable.
Many lenders ensure payment of hazard insurance by including the cost, along with property taxes, in the monthly mortgage payment. To do this, the lender creates an escrow account from which the bills are paid and then deposits part of the mortgage payment in the account every month.