Hazard Insurance

What Is Hazard Insurance?

Hazard insurance protects a property owner from damage caused by fires, severe storms, hail/sleet, or other natural disasters. As long as the specific weather event is covered by the policy, the property owner will be compensated for any damage incurred. Typically, the property owner will be required to pay for a year's worth of premiums at the time of purchasing the policy, but this practice will depend on the exact details of the policy.

Hazard insurance is frequently used interchangeably with catastrophe insurance. Although both deal with large-scale natural disaster coverage, they are technically distinct. Hazard insurance is a portion of a general homeowners insurance policy that protects the structure of the home; catastrophe insurance is typically a separate, freestanding policy that covers specific types of disasters, including man-made disasters.

How Hazard Insurance Works

Hazard insurance protects a property owner from damage caused by fires, lightning, hailstorms, windstorms, snowstorms, or rainstorms, as well as other natural events. Hazard coverage is typically a section of a homeowners insurance policy that protects the primary residence as well as any nearby structures, such as a garage. To be prepared for any eventuality, homeowners should make certain that specific, common hazards are covered in their insurance policy package.

The amount of hazard insurance required is determined by the cost of replacing the home in the event of a total loss. This monetary amount may differ significantly from the property's current market value. Typically, policies are written for one year and are renewable.

Homeowners can frequently choose to increase their policy's hazard coverage. It is far preferable to pay the upfront costs of additional hazard insurance than to deal with the resulting legal and medical issues out of pocket. As severe weather events become more common in North America as a result of climate change, more homeowners may need to purchase additional hazard insurance.

Hazard Insurance and Mortgages

It is common for your lender to require you to carry homeowners insurance if you have or are applying for a mortgage on your home. Strictly speaking, what they want you to have is hazard coverage, which is the portion of homeowners insurance that is directly related to the home structure itself (as opposed to personal liability, loss of use, or personal property coverage).

Purchasing a general homeowners policy will usually satisfy the lender's requirement, though the level of protection required will depend on local municipality laws and other special considerations. If you own a high-value property in a high-risk area, your lender may require additional coverage.

Separate Hazard Insurance Policies

Certain natural or weather-related activity is excluded from the hazard coverage of homeowners insurance in some areas, usually because the area is so prone to these events and it would be too expensive for the insurance company to include them in a standard policy. A Florida beachfront property, for example, may be vulnerable to hurricanes and tropical storms, whereas properties in California near fault lines may be vulnerable to earthquakes.

If a homeowner lives in a high-risk area, a separate hazard insurance policy, such as flood insurance or a policy that protects against sinkholes and landslides, is often required to adequately protect their property (such earth movements are rarely covered by conventional homeowners insurance's hazard coverage).