What is Hazard Insurance?

An important part of the home buying process involves calculating your principal, interest, taxes and insurance; after that, you’d need to figure out what type of insurance you’ll need.  If purchasing a home with a mortgage, you will be required to purchase Hazard Insurance; although when calling insurance companies, they’d have no idea what ‘Hazard Insurance’ is.   Hazard Insurance is a term used by mortgage companies as a general term for a type of insurance covering the encumbered property.  Hazard Insurance could be Homeowners Insurance, Landlord Insurance, Dwelling Fire Insurance, Condo Unit Owners Insurance, Commercial Property Insurance or any other type of insurance covering the dwelling in which the mortgage company will have a joint interest.

What Is Hazard Insurance?

Hazard insurance protects your home from Fire, Wind, Vandalism, Water Damage and any other listed perils which vary from policy to policy.  Property Insurance is a requirement when qualifying for a mortgage. Some areas of the country also require the purchase of a Natural Hazard Report, which shows if the property is in a higher risk area (perhaps a Flood Area, a Brush Fire Zone, an Extreme Wind Area or any other risk that may pertain to the property).

Hazards, also known as perils, may include fires, severe storms, hail, sleet or other natural events. It is natural for mortgage companies to require insurance when lending money for the purchase or a refinance of a property;  should a calamity occur, the mortgage company wants to know that the homeowner or property owner is protected and that the property will be repaired or rebuilt.  Whether you have a mortgage or not, it would be wise to be insured and protected against destructive loss.

Is Hazard Insurance and Homeowners Insurance the same?

Homeowners Insurance is simply a form of Hazard Insurance; the term Hazard Insurance is simply a general term used by the mortgage industry.  For those purchasing a Single Family Home for the purpose of using the dwelling as their Primary Residence,  Homeowners Insurance is definitely the form you’ll need to buy.   For those purchasing a 1 – 4 unit dwelling as an investment property, you’d need to purchase a Landlord Policy instead.

Do I have to buy Home Insurance if applying for a Mortgage?

All mortgage companies and banks require hazard insurance to protect the property against which they are lending money.  In areas of abnormally high risk,  they may require Fire Insurance, Wind Insurance & Flood Insurance depending on the risk at the particular property.  Each lender will have slightly different requirements; it is highly unlikely, if not impossible, to find a lender who doesn’t require insurance.

What Does Hazard Insurance On Your Home Cover?

It can be confusing to understand what is and is not covered by a hazard insurance policy. In general, hazard insurance will only cover the occurrences listed explicitly in the policy. Therefore, it’s crucial to ensure that your hazard insurance policy covers disasters in your area. For example, if you live in the mountains, it may be reasonable to expect heavy snow and the potential damage it can bring.

It’s important to remember that not all hazard insurance is the same. Be sure to read through your homeowners insurance policy and speak with your insurance agent to learn what gaps or risks your policy may have. You may need to purchase additional insurance to cover specific events such as flood or earthquake.

Covered

Many perils (hazards) are covered by Homeowners Insurance. Home Insurance is generally written on a standardized form which will include the following items:

• Fire Damage & Smoke Damage
• Wind Damage & Hail Damage
• Lightning Strike Damage
• Snow, Ice & Sleet Damage
• Damage caused by vehicles or aircraft
• Fallen trees and other objects
• Vandalism & Theft

Not Covered 

Flood damage is not covered by Homeowners Insurance Policies,  homeowners will need to purchase flood insurance separately. Earthquakes, landslides and mudslides are also not covered by Homeowners Insurance.  Your Hazard Insurance coverage will change drastically depending on the use of the property and the geographic location.

What is the cost of Hazard Insurance?

The premium charged will depend on the type of insurance and all the factors that will go into the rating the policy needed.   The geographic location and credit score will be a huge determining factor in most states; there are on a small handful of states that do not utilize credit scoring.  For those who have good credit, credit scoring is a positive factor thereby reducing the insurance premium. Another large determining factor will be the deductible selected for your hazard insurance.

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