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What is Hazard insurance and why is it important?

  • Cars Explained
  • Xavier Sabastian
  • 6 minutes

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The basic definition of Hazard insurance

Hazard insurance protects a property owner from damage caused by fires, strong storms, hail/sleet, or other natural disasters. As long as the policy covers the actual weather event, the property owner will be compensated for any damage incurred. Moreover, at the time of purchase, a property owner will be requested to pay the premium for the year. However, this practice will vary depending on the policy’s specifics.

Hazard insurance and catastrophe insurance are frequently used interchangeably. Although both deal with large-scale natural disaster coverage, they are technically distinct. In other words, hazard insurance is an element of a normal homes insurance policy that protects the property’s structure; catastrophe insurance is typically a distinct, freestanding policy covering certain sorts of disasters, including unnatural disasters.

dean winters falling GIF by Mayhem

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Understanding Hazard insurance

Hazard insurance protects a property owner from damage caused by fires, lightning, hailstorms, windstorms, snowstorms, rainstorms, and other natural events. As a result, hazard coverage is typically a portion of a homeowners insurance policy that protects the primary residence and any neighboring structures, such as a garage. To be prepared for any eventuality, homeowners should ensure certain, typical hazards are included in their insurance policy bundle.

Understanding Hazard insurance

The coverage is determined by the cost of replacing the residence in the event of a total loss. This monetary number may differ greatly from the property’s actual market value. The policies are always written for one year and are then renewed. Homeowners can frequently choose to increase their policy’s hazard coverage. It is far preferable to pay the upfront fees of additional insurance than to cope with the resulting legal and medical issues out of pocket. As extreme weather events become more common in North America due to climate change, more homes may need additional insurance.

In spite of getting only homeowner’s insurance, we repeat this fact, which will not guard you against financial loss

Mortgages using Hazard insurance

It is customary for your lender to demand homeowners insurance if you have or are applying for a mortgage on your house. Strictly speaking, they want you to have hazard coverage, which is the element of homeowners insurance that is directly tied to the home building itself (as opposed to personal liability, loss of use, or personal property coverage).

Purchasing a generic homeowners policy will usually satisfy the lender’s need, while the necessary protection level will depend on local municipality rules and other unique concerns. If you own a high-value property in a high-risk region, your lender may require additional coverage.

Hazard insurance a must for mortgages

Buying Hazard insurance separately

Homeowners’ insurance does not cover every scenario. This is because of the expenses the insurance company has to bear. Some areas are prone to regular activities that the insurance companies will not cover in their homeowners’ insurance. If you are a homeowner who lives in a high-risk area a separate hazard insurance policy is a must. You can opt for policies like flood insurance or similar ones that will protect you from sinkholes and landslides. These types of hazards are very damaging and expensive. A conventional homeowners insurance’s hazard coverage rarely covers such earth movements.

Despite your homeowner’s insurance,  in the event of a natural disaster, you will be exposed to financial instability

Hazards covered by your homeowners’ insurance

Home insurance products provide coverage for a wide range of typical dangers. Most insurance companies will not cover damage caused by a lack of maintenance or normal wear and tear. You’ll need to add an extra endorsement to your homeowner’s insurance policy to get coverage for excluded dangers. Some policies, such as an HO-2, only cover “named perils”—those specifically mentioned in the policy. Other types of policies, such as an HO-3, cover “open perils.” This signifies that the policy covers all risks except those expressly excluded on the declaration page.

Without a doubt, knowing what all are covered in your hazard insurance is a must.

Buying Hazard insurance separately

Difference between named perils and open perils

Named perils are specific risks that appear on the declaration page of your homeowner’s insurance policy. If your policy only covers identified perils, you will not be reimbursed for harm caused by unnamed hazards. 

An HO-1 policy covers the following named perils:

  • Smoke and fire (including wildfires)
  • Explosions
  • Lightning
  • Windstorms and hail
  • Vandalism
  • Theft
  • Vehicle-related damage
  • Damage caused by aircraft
  • Riot-related property damage
  • The eruption of a volcano

HO-2 policies also cover the following six risks in addition to these ten:

  • Objects that fall
  • Excess weight as a result of snow, ice, or precipitation
  • Freezing of household amenities
  • Pipes and other domestic systems suddenly and inadvertently breaking
  • Water or steam damage caused by a sudden and unintentional discharge
  • Damage caused by an unexpected electrical surge

HO-3 and HO-5 plans cover open perils. To clarify, HO-5s, on the other hand, tend to provide more coverage at a higher cost. The perils excluded from your coverage will differ depending on the risks in your area. Exclusions are designed to protect insurance companies from damage caused by a homeowner’s lack of upkeep. If you’ve experienced damage due to an excluded danger, you should still check with your insurance company to determine if you’re covered. 

Common risks that plans do not cover:

  • Earthquakes, floods, landslides, and mudslides
  • Damage due to water
  • Forming of mold and fungus
  • Damage due to infestation of animals or insects
  • Wear and tear
  • Your house’s foundation settling or cracking
  • Damage due to your pets
  • War
  • Government action
  • Smog and corrosion

Again, knowing the difference between named and open perils is important before finalizing your hazard insurance.

Save up to $1000 on car expenses

Bottom line

Hazard insurance protects a property owner from damage caused by wildfires, strong storms, and other natural disasters. This insurance is typically a portion of a standard homeowners insurance policy that covers the home’s structure. Mortgage lenders frequently require homeowners’ insurance to obtain hazard coverage. On some occasions, homeowners prefer to go for separate or supplemental insurance. This is to cover specific scenarios. These scenarios include specific dangers like floods or landslides.

In other words, getting hazard insurance for yourself is a must. In brief, you will have to pad your homeowners’ insurance with hazard insurance.

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