The Ultimate Guide to Hazard Insurance

An important piece of the home buying puzzle includes estimating your PITU (principal, interest, taxes and insurance) and what type of insurance you’ll need. One of the policies you may be necessary to purchase is hazard insurance. Although it’s required for many places, some people aren’t aware that this coverage exists or why they might need it. In case you’re confused about hazard insurance, this post will show you everything you have to know.

What Is Hazard Insurance?

It’s coverage that protects a property owner against damage caused by severe storms, hail/sleet, fires, or other natural events. As long as the particular weather event is covered within the policy, the homeowner will compensate for the cost of any damage incurred. Standardly, the homeowner will be obligated to pay for a year’s worth of premiums when buying the policy. Still, this practice will depend on the exact details of the policy.

How It Works

Hazard coverage is a subsection of a homeowners insurance policy that protects the main dwelling and other nearby structures, like a garage. To be prepared for any event, homeowners should be sure that specific, common hazards are covered in their insurance policy.

The amount of hazard coverage required depends on what it would cost to replace the home in case of a total loss. This amount may differ significantly from the property’s value on the current real estate market. Policies are usually written for one year and are renewable.

Homeowners can often elect to increase the hazard coverage of their policy. It’s much better to pay the upfront costs of an extra hazard policy than to deal with the associated medical and legal issues out-of-pocket. As serious weather events become more commonplace across the USA due to climate change, improved hazard insurance may become required for more property owners.

What Does Hazard Insurance Cover?

This type of coverage may cover hazards, including:

• Fire damage;
• Lightning;
• Hail;
• Damage;
• Vandalism;
• Theft;
• Fallen trees;
• Explosions;
• Vehicles that run into your home.

It’s crucial to remember that not all insurance policies are equal. Make sure to read your policy or check with your insurer to learn what risks may or may not be covered by your insurance.

What Does Hazard Insurance Not Cover?

Homeowners hazard insurance won’t cover the structures on your property and the personal property within it, if a natural disaster strikes. Most won’t cover floods or earthquakes. So, if the earth shifts beneath your home, which causes a minor flood and pipe burst, hazard or flood insurance won’t cover it.

Who Should Get Hazard Insurance?

Everyone with a homeowners insurance policy automatically has hazard insurance, but this sort of coverage is more valuable to householders in certain areas. Specifically, homeowners in states with a higher risk of natural disasters are more likely to file a hazard insurance claim. In areas subject to particular dangers – earthquakes and wildfires in parts of California, for example – hazard policies may not insure against them unless you pay extra for a supplement on your coverage.

Property owners in states hit by hurricanes, such as Florida, Texas, New Jersey, North Carolina, and Louisiana, should have home hazard insurance to protect against hurricane-related damage. Additionally, homeowners in midwestern states, including Kansas, Nebraska, and Oklahoma, should buy this policy to cover their homes in the case of a tornado.

When I Need Hazard Insurance?

Having homeowners insurance to cover you against hazards isn’t a legal requirement. However, this doesn’t mean you’re free to decide whether you want to buy it or not. For instance, if you take out a mortgage to purchase a home, the lender will require you to have some hazard insurance level. The mortgage is secured versus the value of the property. Damage from a fire would reduce that value, so lenders insist on insurance against these types of hazards.

Therefore, the lenders will often want the first year of premiums paid up in advance. Additionally, if your lender maintains an escrow account on your behalf, you may be required to pay additional months’ premiums.

Is Hazard Insurance The Same As Homeowners Insurance?

Yes, when your mortgage firm tells you to get hazard insurance for your home, what they mean is a homeowners insurance policy. However, there are other kinds of insurance products — like dwelling fire policies for landlords — that could qualify as adequate coverage and secure you a home loan. But bear in mind that dwelling fire policies only protect the home structure against covered hazards. In case the home is your primary residence, you’ll need a complete homeowners insurance policy.

How Much Hazard Insurance Do I Need?

You should have enough hazard coverage so that you would be able to rebuild your home if the above-mentioned perils destroyed it. Remember that this may be different from your home’s market value. To pinpoint the amount of hazard insurance you need, you’ll have to consider construction and other costs connected with rebuilding in your area.

If your home is destroyed or damaged from something that’s not a named hazard — for example, water damage resulting from a flood. In that case, you should talk to your agent about supplemental coverages, called amendments, that can expand your policy for disasters that aren’t named in the base policy.

How Much Does Hazard Insurance Cost?

You don’t pay for this insurance as a separate policy. Instead, it’s implemented into the premium for the broader homeowners policy. How much the hazard coverage beefs up the premiums for the policy varies based on factors, such as:

• The age and value of the home;
• The materials the home is made of;
• The type of policy limit you select;
• The policy deductibles you opt for;
• Whether the home has certain security features.