Hazard insurance protects a property owner against damage caused by fires, severe storms, earthquakes, or other natural events. As long as the specific 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.

Breaking Down Hazard Insurance

Hazard insurance protects a property owner against damage caused by fires, severe storms, earthquakes, or other natural events. A typical property or homeowners' insurance policy usually won't cover all events that could damage your property. In high-risk areas, some events will be 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.

Whatever the hazardous conditions may present risks to a home, homeowners should be certain those specific conditions are covered in their insurance package. If a homeowner has a mortgage, the lender will likely require a certain minimum hazard insurance to protect its investment. The type and level of insurance will be dependent on the laws of the municipality and the requirements of the lender.

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 number one place where accidents occur, and both homeowners insurance and hazard insurance are very important 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.

How Much Hazard Insurance is Needed?

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 than what the home is worth 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, then deposits part of your mortgage payment in the account every month.