Hazard insurance

Hazard insurance, also called homeowner’s or property insurance, provides coverage for specific natural hazards, such as fire, wind, earthquakes and vandalism. Many homeowners purchase a ‘comprehensive’ form of insurance first, which may cover almost all possible damages, but then seek additional hazard insurance for specific dangers. Those who live in flood plains may buy hazard insurance for water damage, for example, while homeowners in California may add earthquake insurance.

Since there may be a definable difference between ‘homeowner’s insurance’ and ‘hazard insurance’, it pays to ask the insurance broker about coverage before agreeing to the contract. Some comprehensive policies already provide coverage for certain hazards, so additional hazard insurance may not be strictly necessary. Others may not fully cover hazards specific to the area, such as damage caused by a breeched dam or vandalism during construction. Truly comprehensive home insurance should cover both liability and physical damages. Hazard insurance is usually geared towards physical property damage, rather than owner liability for accidents on the premises.

During the closing of a property sale, the buyer is almost always required to obtain some form of hazard insurance. The terminology for this coverage may change from ‘hazard insurance‘ to ‘property insurance‘ to ‘comprehensive homeowner’s insurance’, but it all means the same thing to the closing attorneys and lenders. Buyers are strongly encouraged to buy at least enough comprehensive hazard insurance to cover the cost of the mortgage. This will provide enough protection to restore the property if it burns to the ground the day after the sale is complete.

Premiums for hazard insurance are generally calculated on the appraised value of the property, the age of the building, construction methods and known natural hazards in the area. Insurance agencies may offer additional hazard insurance policies such as flood, earthquake and hurricane coverage, but homeowners may have to weigh the benefits against the higher premiums. Some hazard insurance policies may sound frivolous, but the damage caused by a rare earthquake in North Carolina, for example, could be substantial. Hurricane hazard insurance in Florida may sound automatic, but some homeowners may save money on premiums by not adding it to a comprehensive policy, as the damage may be covered without the need for an additional policy.