Hazard insurance is the part of homeowners insurance that covers your home against natural hazards, including fire and wind damage. Most mortgage lenders require hazard insurance.
Before you can officially close on a mortgage, you have to pay closing costs and meet certain lender requirements, including purchasing hazard insurance for the home. Since the lender has a financial interest in the property, they want to make sure it’s covered against natural hazards. If your home is burglarized or damaged by a covered peril, you can tap into hazard insurance to reimburse you for the loss.
Hazard insurance refers to the section of your homeowners insurance policy that covers the structure of your house against natural disasters and hazards
When you take out a mortgage on a home, your lender will require you to get hazard insurance before extending you a loan
The cost of hazard insurance depends on multiple factors, including your home’s age, size, and construction type
Hazard insurance covers the structure of your home from covered “perils”, including fire, lightning, wind, hail, and vandalism. If your house is damaged by a covered peril, you can file a claim with your insurance company to be reimbursed for the damage.
Once your claim is accepted, you’ll pay your policy deductible, which is the amount you’re responsible for covering on a claim. Once your deductible is subtracted from the claim settlement, your hazard insurance will pay out for repairs, up to the applicable coverage limit in your policy
Yes, before your lender extends you a loan, they’ll typically require you to buy “hazard insurance” (aka homeowners insurance) to protect their investment against natural disasters and other covered losses. Your lender may also require that you pay for hazard insurance through an escrow account as part of your monthly mortgage payment; when your homeowners insurance bill is due, your lender pays the insurance premiums from this account.
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Hazard insurance refers to the section of homeowners insurance that covers the structure of your home and additional structures on your property. It is not separate from homeowners insurance. When your lender requires you to get “hazard insurance” for your home, they’re referring to a standard homeowners insurance policy.
There are several kinds of hazard insurance policies (HO-1 through HO-8) with varying levels of coverage. The way your property is valued and the amount you’re reimbursed on claims will depend on what kind of policy you have. Generally speaking, the lowest level of coverage (actual cash value) is cheaper, and the most comprehensive level of coverage (replacement cost value) is more expensive.
Actual cash value: Actual cash value policies (HO-1s) payout for the depreciated value of your home, meaning its age and condition will be factored into your claim reimbursement. If your 15-year-old roof is damaged, for instance, ACV coverage will reimburse you for the loss only after 15 years of depreciation have been subtracted from the payout.
Replacement cost value: Replacement cost policies (HO-2s, HO-3s, and HO-5s) payout the amount that it’d cost to rebuild the home with materials of similar value and quality. It does not deduct depreciation from your payout, so if the aforementioned roof was damaged, you’d be reimbursed for the value of a new roof. Hazard insurance premiums are generally higher under RCV plans, but your coverage is significantly better.
Extended replacement cost: Extended replacement cost policies cover your home at its replacement cost, but with the added guarantee that the insurer will cover any unexpected increase in repair costs. Most insurers will give you the option of extending your home’s replacement cost an additional 20% or 50% past your dwelling coverage limit. If you live in areas prone to natural or regional disasters where labor or supplies could become temporarily scarce or expensive during the rebuild, extended replacement cost is a great option.
Hazard insurance covers your home in the event it’s damaged by a covered peril. A general rule of thumb for homeowners insurance coverage is this: If the damage is sudden and accidental, it is often covered (except for damage due to earthquakes and flooding), but if it results from maintenance issues or general wear and tear, it likely won’t be covered.
There are two main hazard insurance policy types: Named peril and open peril policies.
Certain policy types, like HO-1 and HO-2 homeowners insurance, only cover the 16 “named perils” listed in your policy, including:
Fire or lightning
Windstorm or hail
Riot or civil commotion
Weight of snow, ice, or sleet
Accidental discharge or overflow of water or steam
Sudden and accidental tearing apart, cracking, burning or bulging
Freezing of plumbing
Sudden and accidental damage from an artificially generated electrical current
Foundation cracking from tree roots
General wear and tear
Pests (insects, vermin, rodents, etc)
Natural settling, cracking, shrinking, expanding of the foundation
Earthquakes and floods aren’t covered by hazard insurance, but your insurer may offer separate flood or earthquake insurance that you can purchase as a separate difference in conditions (DIC) insurance policy or home insurance add-on.
Hazard insurance makes up the bulk of your homeowners insurance policy, which on average costs around $1,250 annually. The overall cost of coverage will depend on factors related to the home itself, including:
Your home’s square footage
The location of your home
The construction type of your home
Your roof type (hip, gable, or flat)
The number of bathrooms in your home
Your home’s age
Insurers set rates based on how likely you are to file a claim. If you live in an area that experiences frequent natural disasters, or your home is older and more susceptible to damage, that can significantly impact your rates.
There are eight different types of homeowners insurance policies for various home types and coverage needs.
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