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What is Hazard Insurance?

By September 11, 2021September 30th, 2021Home

Anyone planning to buy a home and apply for a mortgage might be introduced to the term “hazard insurance.” Those not familiar with it will likely be confused. “What is hazard insurance coverage, and why do I need it?” 

Hazard insurance is essential to keeping your home safe and protecting your mortgage provider’s investment. The term itself is common among lenders, so you should understand what it means but not panic when you first encounter it. Below is everything you need to know about hazard insurance.

 

What is hazard insurance on a mortgage?

Some mortgage lenders refer to hazard insurance in their contracts to describe insurance coverage that protects your home against specific perils. It typically signifies coverage for the structure of the house only. Your lender will probably require hazard insurance as minimum coverage before they will issue you a mortgage loan.

 

How is hazard insurance coverage different from homeowners insurance?

As mentioned, hazard insurance refers specifically to those hazards—fire, wind, lightning, hail, etc.—that damage the structure of the house. It is not coverage that a homeowner needs to purchase separately. Instead, it is that portion of a homeowners insurance policy that is directly related to the home structure itself.

Your homeowners insurance covers your personal belongings and medical bills if someone is injured at your house. It will also provide liability protection for legal costs if the injured person chooses to sue you.

So, hazard insurance (the structure) combines with personal property and liability coverage to form your comprehensive homeowners insurance policy. In other words, if your mortgage lender informs that you must have hazard insurance on a loan, you now know that purchasing a standard homeowners insurance policy will typically satisfy their requirements.

Here is what is included in a standard homeowners insurance policy. Note that the first item on the list is referred to as “Dwelling Coverage” and is the hazard insurance coverage in which your lender is specifically interested:

  • Dwelling coverage: Insures the structure of your home, including its roof and foundation.
  • Other structures coverage: Covers detached structures such as the garage, shed, fence, and deck.
  • Personal property coverage: All of your belongings inside and outside the home are covered.
  • Loss of use coverage: If you are forced to live elsewhere after your home is damaged or destroyed, the loss-of-use coverage will pay for those expenses.
  • Personal liability coverage: As the name implies, this portion covers your liability expenses if someone is injured in your home and sues you
  • Medical payments coverage: If a guest is injured in your home, their medical expenses will be covered.

 

What does hazard insurance cover?

There are two types of homeowners insurance policies, and each one determines coverage differently. Some policies provide a list of “named perils,” and there are typically sixteen of these:

  • Lightning or fire
  • Hail or windstorm
  • Explosions
  • Damage caused by an aircraft
  • Theft
  • Riots or civil disturbances
  • Smoke damage
  • Damage caused by vehicles
  • Vandalism
  • Falling objects
  • Volcanic eruption
  • Pipe freezing
  • Damage from the weight of snow and ice
  • Water damage from plumbing, heating, or air conditioning
  • Water heater cracking, tearing, and burning
  • Damage from electrical current

Others, called “open perils” policies, cover everything except perils such as:

  • Earth movement
  • Certain types of water damage
  • Power failure
  • Neglect
  • War
  • Nuclear hazard
  • Intentional loss
  • Mold or fungus
  • Wear and tear
  • Mechanical breakdown

 

You will not see flood or earthquake protection in the hazard portion of your homeowners policy. You will have coverage options, depending on where you live, so you could add the coverage to your existing insurance or purchase a separate policy.

 

How can I find out how much hazard insurance coverage costs?

The insurance advisors at White Cloud Insurance are always here to help you choose the right coverage for your situation and your budget. We can provide you with the hazard insurance your mortgage lender requires, along with a comprehensive homeowners insurance policy—all with competitive premiums. Use the convenient contact form, call us at 305-556-1488, or send us a message at hello@accelinsurance.com to get started.