Hazard insurance

You need to understand what hazard insurance is. Here’s what to know.

What is hazard insurance?

Hazard insurance is a property insurance policy that provides coverage for damage to the structure of your home. Some home insurance policies include hazard insurance, but it often must be purchased separately. As long as the specific hazard is covered within the policy, the property owner will get compensation to cover the cost of any damage incurred.

Deeper definition

Hazard insurance might be necessary because standard home insurance does not cover every conceivable type of hazard. This is because some hazards are more prevalent than others depending on where the property is located, and it is too costly for an insurance provider to include coverage of these common hazards in a standard homeowner’s insurance policy.

For example, beachfront property may be prone to tropical storms and hurricanes, and properties located close to fault lines may be more susceptible to earthquake threats. Since these types of hazards are common, homeowners often have to get hazard insurance that covers specific types of potential harm on top of their standard home insurance.

Generally, hazard insurance refers to coverage for the structure of the home only, not the property inside it. It may reimburse the policyholder for damage from the following hazards:

  • Earthquakes.
  • Floods.
  • Erosion and landslides.
  • Wildfires.
  • Storms like hurricanes and tornadoes.
  • Sinkholes.
  • Theft and vandalism.

The cost of hazard insurance varies depending on where the house is located, how it is built, and the type of anticipated hazards. For example, houses in Florida are much more susceptible to the risk of hurricane damage than are houses in New Mexico. And hazard insurance doesn’t just protect the homeowner. Lenders may require homeowners to take out hazard insurance if the homeowner uses his house as collateral for a loan, in case some kind of disaster destroys or decreases its value.

Insurance may not cover every loss. Build a solid nest egg with an interest-bearing savings account to help protect yourself even more.

Hazard insurance example

Daisy wants to take out a home-equity loan on her house in Los Angeles. The bank informs her that it’s rather close to a fault line, so it’ll only agree to the loan if she gets a hazard insurance policy that covers earthquakes. She’s forced to pay for the cost of the policy herself, but she gets a good deal from the California Earthquake Authority. The lender’s investment is protected, and Daisy benefits from the value of the loan.



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