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What is Hazard Insurance?

What is Hazard Insurance?
Catherine Hiles
Updated October 18, 2021
3 Min Read

When you buy a home, chances are your lender will require you to get something called hazard insurance. This policy will help pay to repair or rebuild your home if it suffers damage from certain events, referred to as “hazards.”

Your lender wants to make sure that giving you a home loan is a smart decision. If you don’t have hazard insurance and your home is damaged or destroyed, the lender will lose the money they have put into your loan. Most (if not all) lenders won’t give you a loan at all unless you can provide proof of hazard insurance.

Even if you are lucky enough to avoid a mortgage and can pay cash for your home, purchasing a hazard insurance policy is still a smart move.

But what exactly is hazard insurance, and what does it cover?

What is hazard insurance?

When people refer to “hazard insurance,” they are generally talking about a homeowners insurance policy. But while the two terms are often used interchangeably, there are other types of homeowners insurance that you can get that will suffice as proof of coverage for your lender.

Hazard insurance is the specific part of your homeowners insurance policy that protects you from specific dangers, or hazards. While you don’t directly sign up for hazard insurance by itself, you’ll have coverage with any good homeowners insurance policy. The hazard portion is designed to cover your home’s structure, whereas other parts of homeowners insurance cover its contents.

What does hazard insurance cover?

Some examples of the hazards that this insurance covers include fire, theft, and damage from lightning or severe storms. If your home is damaged beyond repair, the hazard portion of your homeowners insurance should pay for it to be rebuilt completely.

When choosing hazard insurance for your home, you need to make sure it covers the types of natural disasters your area is prone to. For example, if you live in Missouri, you’ll need to make sure your insurance covers tornado damage. If you live in Colorado, coverage for damage caused by heavy snow is a must. Make sure you ask about which events are specifically covered by your policy before signing any contracts.

What doesn’t hazard insurance cover?

While the name suggests otherwise, hazard insurance generally doesn’t cover disasters that typically require additional insurance, such as landslides or floods. To be covered against those and similar disasters, you would need to take out additional coverage designed for those issues specifically. If you live in an area prone to flooding, you need to look for more than just hazard or regular homeowners insurance to take care of your risks.

Hazard insurance also won’t cover things like mold, termites and other pest damage, or general wear and tear on your house from everyday living. If someone is injured while on your property, hazard insurance will not cover any medical costs that arise from that injury,

Check to see whether your hazard insurance will cover structures on your property other than the home itself. If you have a detached garage, barn, shed, or fence, you want to make sure they are covered by your policy so they can be repaired if damaged by a natural disaster.

Who needs to get hazard insurance?

If you own a home, you absolutely need some form of hazard insurance. As previously mentioned, it’s likely required for you to even borrow the money to buy a home.

Not only that; it’s just good sense to make sure your investment is protected. For many, a home is the most expensive thing they will ever buy. Hazard insurance can protect your home and give you peace of mind that it would be fixed if anything bad happened.

Your mortgage lender may be able to help you find the right homeowners insurance for your house, location, and budget.

How much does hazard insurance cost?

How much you pay will depend on the size of your home, its location, and the cost it would take to rebuild it to its current specifications. If you live in one of those flood- or landslide-prone areas, your homeowners insurance policy will cost more than if you live in a relatively safe area.

You may also pay more for hazard insurance if you have a low credit score. That’s because poor credit suggests a history of late- or non-payments, so insuring you is a higher risk than insuring someone with perfect credit.

Most lenders will offer an escrow account when you get a mortgage. That allows you to lump in the cost of your homeowners insurance and property taxes with your monthly mortgage payment. The tax and insurance money then goes into the escrow account, where your premiums will be paid automatically on a monthly, bi-annual, or annual basis (depending on your insurance provider’s requirements.

Summary

Hazard insurance is a must for anyone who owns a home. It can help pay to repair or rebuild your home in the event of a natural disaster. While you can’t typically buy a standalone hazard insurance policy, most homeowners insurance policies include a hazard portion.

The best way to find a policy that fits your needs is to talk to a trustworthy insurance agent to learn about your options.

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