What is Hazard Insurance?
Hazard insurance is not only the most obvious portion of a homeowners insurance policy, but an incredibly important one when purchasing a home. Hazard insurance is the area of coverage that deals with the insurance of the actual structure of the home against covered perils as listed in the policy. Standard policies list common hazards such as fires, lightning strikes, windstorms and hail to name a few.
Depending on the area that the property is located in, homeowners may need to purchase additional insurance for disasters such as floods and earthquakes, since standard hazard insurance doesn’t usually cover these. Because hazard insurance deals directly with covering damages to the actual house itself, lenders would deem it the most important, since they are the deed holders of the property until the mortgage is paid in full.
Is Hazard Insurance the same as Homeowners Insurance?
If you’re buying a home, it is important to remember that insurance plays a huge role in homeownership. Mortgage transactions generally require the purchase of some sort of homeowner’s insurance in order to be approved. During the home purchase process, it is quite common to discuss homeowners insurance, but sometimes, borrowers may hear the term hazard insurance thrown around. So what is hazard insurance?
How Hazard Insurance plays a Role in Homeowner’s Insurance
While they may sound like two completely different things, hazard insurance is actually a portion of a homeowners insurance policy, and not a separate form of coverage. You see, a standard homeowners insurance policy can include various areas of coverage. The breakdown of a standard homeowners insurance policy looks a little something like this:
Hazard Insurance
Personal Property Insurance
Liability Insurance
Additional living expenses (ALE) coverage
As you can see, there are more than a couple areas of focus for the insured, but every plan is different, and the areas of coverage actually depend on the type of insurance purchased. While the coverage for areas like liability or personal property are very important in their own ways, lenders will generally focus on the hazard portion more than anything else. Actually, when it comes to the home loan process, hazard insurance is the most important part as far as they are concerned.