Hazard Insurance

What is Hazard Insurance?

Hazard insurance is a type of insurance coverage that is a part of homeowners insurance. It offers protection for damages incurred on your property as a result of natural or man-made disasters, which include fires, storms, lightning, or other hazards.

Getting hazard insurance coverage means that you are covered for financial losses if repairs or construction are needed to fix the damages on your home. Since hazard insurance is an extension of a homeowners insurance policy, it cannot be purchased as a standalone insurance policy.

Hazard insurance covers protection for the structure of your home, such as the roof and walls. It also covers other structures that are a part of the structure, such as the shed, garage, or fencing.

If there is damage to the inside of the home or someone is injured in the home, you will not be able to receive compensation for financial losses because this insurance only covers the structure of the home. However, a comprehensive homeowners insurance policy as a whole will be able to provide protection for personal property, liability coverage, and medical expenses.

What Does Hazard Insurance Cover?

Hazard insurance offers protection for losses from different kinds of natural disasters. However, some natural disasters are not a part of homeowners insurance, including floods, earthquakes, and hurricanes. If you would like protection for these natural disasters, you may need to purchase a separate insurance policy.

There are two types of hazard insurance: named perils and open perils.

1. Named Perils Insurance

Named perils insurance will provide coverage if the cause of damage is one of the specific hazards listed in your insurance policy. They may include:

• Hail
• Fire or smoke
• Snowstorms, rainstorms, or wind storms
• Lightning
• Falling objects
• Explosions
• Damage caused by a car or aircraft
• Theft and vandalism
• Volcanic eruptions

2. Open Perils Insurance

On the other hand, open peril insurance will cover all hazards except those specifically excluded from the insurance policy. The exceptions may include:

• Earthquakes
• Nuclear event
• Rodents and insects
• Neglect
• Water damage
• Vandalism to a home vacant for several days

How Do You Get Hazard Insurance?

When you purchase hazard insurance, a representative from the insurance company will calculate the value of your property, which will depend on several factors, such as the location, age of your home, and the current market value. It will help the insurance company decide on the premium amount that you will need to pay for the insurance policy.

If a natural disaster occurs and damages your property, you must submit an insurance claim to the insurance company. The insurance company will assess the value of the damage, and you will be able to receive the compensation necessary to cover the cost of repairing the damage.

Importance of Hazard Insurance When Getting a Mortgage

A mortgage lender may require you to get homeowners’ insurance if you are taking out a mortgage to purchase a property. In particular, the mortgage lender may require you to purchase this insurance because it provides coverage for the property’s structure in the event of damage from a natural disaster.

For mortgage lenders, it is important to obtain hazard insurance because property damage can decrease property value. As a result, lenders want to ensure that the property owner has sufficient compensation to repair the damage before issuing a mortgage. Once you purchase the appropriate insurance policy, you may need to provide proof to your mortgage lender to confirm the coverage.

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Additional Resources

To keep learning and developing your knowledge base, please explore the additional relevant resources below:

• Insurance Claim
• Mortgage Insurance
• Insurance Underwriter
• Maximum Foreseeable Loss
• Nonforfeiture Clause

See all Wealth Management resources