Definition, Role in Homeowners Insurance Policy | Business Insurance

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  • Hazard insurance is the part of a homeowner’s policy that covers damage from fire, weather, and other natural events.
  • Floods and earthquakes are the two main exclusions in hazard insurance.
  • Your lender will tell you the minimum coverage required, but you’ll probably need more.

Homeowners insurance is made up of several parts. One is called hazard insurance, also known as homeowners coverage. Lenders require it to protect their investment in your home.

What is risk insurance?

Hazard insurance is the part of your homeowners policy that protects against loss from perils, including fire, storm, hail, and other disasters. New home buyers are sometimes confused by the term when their mortgage documents specifically state that they are required to purchase hazard insurance, often thinking it is some type of additional coverage outside of their homeowners policy.

“Hazard insurance refers to a single section, called Coverage A, of a property insurance policy,” says Brittany Alexander of Premier Property Law. “Coverage A covers damage to the building itself, such as the roof, walls, and windows. Personal property and liability are covered under other sections.”

When damage occurs, if the event that caused the damage is included in your policy, you will be compensated up to and including the cost of rebuilding your home, depending on the amount of coverage you have and the amount of damage you incur.

Hazard insurance is not a legal requirement. But if you have a mortgage, your lender will require it to protect their investment in your home. In addition, your lender’s right to require you to take out hazard insurance is protected by law to the extent that your lender can take out a policy on your behalf and charge you if it has reason to believe you have not complied with the requirement. . have the coverage.

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What does risk insurance cover?

If your home or other structures on your property are damaged or destroyed, hazard insurance kicks in.

“Peril insurance covers the cost of damage to your home from natural or man-made disasters like fire, lightning, hail, and even vandalism,” says Steve Wilson, senior underwriting manager at Hippo, an insurance company with Headquartered in Palo Alto, California. .

“While homeowners insurance as a whole covers multiple risks, hazard insurance specifically covers the structure of your home, such as the walls, floor, and ceiling, and provides financial help when you replace or repair your home,” He says.

Perils are known as perils in homeowners insurance policies. Most hazard insurance covers damage or loss caused by the following perils:

  • fire and smoke including the cost of repairs to your home, freestanding structures, and personal belongings
  • Wind such as high winds, tornadoes, hurricanes, thunderstorms, and microbursts
  • Hail including damage to the roof, siding, and interior of the home when wind-blown hail enters the structure
  • Burst caused by gas leaks, improperly installed gas lines or appliances, nearby explosions that damage your home, and explosions caused by non-covered perils like earthquakes or floods
  • Stole including damage to your home or other structures from theft, theft, or damage to personal belongings
  • Vandalism and malicious antics resulting in broken windows and lights, defacement of your property, essentially anything done without your approval
  • falling objectsmost often trees, as long as it is not considered negligent and damage occurs to a covered structure or item
  • Snow, sleet or ice typically caused by the weight of the material, freeze-thaw damage, or damage caused when snow, sleet, or ice is blown by the wind
  • Water (other than a flood) caused by a broken pipe, leaking water heater, or other appliance, but not as a result of poor maintenance
  • power surges caused by lightning strike or power company operations
  • Riots or civil unrest leading to damage to structures or personal property
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What does risk insurance not cover?

While hazard insurance covers a wide range of risks, it does have limitations, Wilson says.

“Certain natural disasters, such as earthquakes, floods, and hurricanes, won’t be covered by a standard policy, so if you live in a high-risk area, you may want to consider additional flood, hurricane, or earthquake insurance.”

Other excluded hazards include:

  • Mold damage, a fact that makes discovering mold in a pre-purchase inspection critical
  • infestations caused by termites, rats or other pests, another item that should be revealed by a good home inspector
  • Home Office including business inventory and supplies must be disclosed and coverage must be purchased separately or not covered
  • Pets that are considered exotic or members of a rare breed may require special coverage, including liability that is not part of the normal risk coverage
  • Jewelry, art or heirlooms and other high-value belongings receive limited coverage at best, which means you need to declare them and make sure they’re fully covered
  • Swimming pools not usually covered, although a shed or detached garage is

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How much risk insurance do you need?

Your lender will set the minimum amount of hazard insurance you need, but most experts suggest a more granular approach than just relying on that number.

“Each lender has specific requirements about what coverage and how much coverage a buyer needs to get a mortgage,” Alexander says. “Factors include how much it would cost to rebuild the property in today’s market. Keep in mind that the amount of coverage may not be the same as the amount you paid for the house, because part of the purchase price includes land and hazard insurance that it only covers the building structure.”

Bill Martin, president and CEO of Plymouth Rock Home Assurance, also highlights the importance of replacement cost.

“The amount of homeowners coverage you need is determined by the estimated cost to rebuild your home, not its market value,” he says. “You must have enough homeowners coverage to rebuild your home from scratch in the event of a total loss.”

Wilson emphasizes that it’s also important to include personal property coverage in your homeowners policy since personal belongings are not part of hazard insurance. “If you’re not sure what coverage you need, check with your insurance agent to help you with your questions as you select the best coverage for you,” he advises.

The bottom line

If your lender says you need hazard insurance to get the loan, remember that it’s part of your overall homeowners policy, not something extra. The minimum required coverage specified by your lender will likely be less than the full replacement cost to build your home from scratch, so a full evaluation is necessary to make sure you don’t have less coverage than you should.

Finally, be aware of special perils, such as hurricanes, earthquakes, or floods, which may require separate coverage if they are common in the area where your home is located. Your home is probably the biggest asset you have. The peace of mind you’ll experience with sufficient coverage is well worth the cost.