Having adequate insurance means that you cover the many things that can cause you financial ruin. These include lost property you must replace, lawsuits by those harmed by your property or actions, and having to find alternative living arrangements if you lose your home. Many events or hazards can ruin your home, furniture, jewelry and other items.
As you will see below, you don’t have to choose between hazard and homeowners insurance in order to recoup losses to property.
Coverage for hazards to your home represents just one facet of homeowners insurance. Your homeowners policy addresses many kinds of losses that may arise out of owning a home. These include:
Many types of events can trigger coverage under a homeowners policy. In particular, you may need liability or claim reimbursement coverage if a guest trips or slips on a defective or slippery floor, porch, deck or stairs. The family members of children who get into a pool lacking adequate or required barriers or fencing may have wrongful death claims for drowning or claims on behalf of the injured children.
Your homeowners policy contains a hazards component that reimburses you for loss of or damage to the structure resulting from certain events that we’ll describe more fully below.
If you have a mortgage on the property, your lender requires that you maintain hazard insurance during the life of the loan. Your insurance obligations to the lender include that you name the bank or mortgage company as a “loss payee.” This means that the lender receives the proceeds from the loss of your residence up to the amount of the outstanding loan balance. The remainder goes to you.
Depending on your lender, the premiums for hazard coverage constitute part of your monthly mortgage payment. The bank or mortgage company keeps the premium portion of the payment in escrow, and then pays the insurance premium when it’s due. Your lender will require only hazard insurance, not coverage for loss of personal property or liability you might incur because of unsafe conditions or negligence at the residence.
Hazards represent the events, or perils, for which you have coverage against the resulting damage or loss to the structure. The hazard portion of your homeowners insurance treats the following events as perils:
These perils trigger coverage if you have the most common policy, the HO-3 form. Some forms of hazard coverage have fewer perils. You can also obtain special forms if you live in a rental or condominium. With the HO-6, you get hazard coverage for losses to your unit. The condominium owners’ association is the beneficiary of a hazard policy covering the condominium building and structure itself. An HO-7 policy offers mobile home owners the same coverage as the HO-3.
Standard hazard policies do not cover damage from flooding. You will need a separate flood insurance policy for losses from such an event.
If you have a federal loan or one backed by a federal program, you must maintain flood insurance if you live in a high-risk flood zone as designated by the Federal Emergency Management Administration. Even if your home does not sit in a high-risk flood area, you still may need flood insurance. Flooding is present in nine out of every ten natural disasters. One out of every five claims for flood damage come from places with low to moderate flood risk.
Most flood insurance comes through the National Flood Insurance Program (NFIP). Federal flood insurance pays up to $250,000 for losses to residential structures, $100,000 to the contents inside homes, $500,000 for commercial buildings, and $500,000 for the contents inside commercial structures. You do not get expenses for relocation from a flooded residence. For those benefits, you need private flood insurance.
Homeowners policies typically exclude earthquakes as covered hazards for similar reasons as floods are excluded. Nearly 90 percent of the American population resides in an area with seismic activity, and these locations are not limited to California or other areas of the west coast. Areas of at least moderate risk of seismic activity are also present in the South Central United States (New Madrid), coastal South Carolina and the southern Appalachian Mountains. Indeed, 39 states have been locations for earthquakes, with property owners in all 50 states experiencing earthquake damage to some degree. As with flood insurance, you need a separate policy for earthquake hazards.
Typically, standard hazard insurance does not cover supplies, computers or other equipment you use in connection with a home business or home office. With some insurers, an endorsement (addition) to the standard policy should afford coverage. Otherwise, you will need a separate business policy.
Exclusions in homeowners policies for business activity become more significant if you are sued for activity arising out of the business. To avoid the expenses of suits and resulting damages, you will need commercial liability insurance.
Hazard policies pay benefits either on the actual cash value or replacement cost approach.
Actual cash value limits your reimbursement to the value of the lost or destroyed property at the time the hazard occurred. Under this approach, the insurer takes into account any depreciation to the structures and personal property. Actual cash value policies generally pay less than replacement cost policies, which afford benefits based on the price or cost of new items to replace what was lost. As a result, your premiums will run higher under a replacement cost policy than one that pays actual cash value.
The right kind of homeowners insurance for you depends on the risks you face and your budget for buying insurance. The cost of your insurance turns on factors such as the age and value of your home, the value of the contents, the risks of particular hazards such as hurricanes, tornadoes and theft; and the deductibles you are willing to assume. A deductible represents an out-of-pocket payment to replace property before hazard insurance kicks in to pay the rest. A higher deductible translates to lower premiums. Similarly, you might have lower insurance costs if your property has a lower value and, thus, you have lower limits.
Discuss with your insurance agent the property you own and the types of perils you are more likely to face. It may influence whether the standard homeowners coverage is enough in your state. Hazard Insurance California Hazard Insurance Florida Hazard Insurance Texas
No matter where you live, there’s always an underlying threat that your property could incur structural damage. Hazard insurance is beneficial because it covers just that – structural damage caused by fires, extreme weather, and more. In fact, almost every lender requires hazard insurance because it’s so important. Since there are often misconceptions about hazard insurance, we came up with a list of the most asked questions.
Many people confuse hazard insurance with homeowners insurance, when in fact, hazard insurance is a component of homeowners insurance. Hazard insurance itself is far less comprehensive than homeowners insurance. The following questions will help you better understand what hazard insurance covers and whether you need it for your home.
When you get hazard insurance, you insure your property, not your mortgage. However, if you take out a mortgage, your lender may require you to get hazard insurance on your property. In some cases, lenders will not require you to get hazard insurance if your homeowners insurance provides adequate protection.
Hazard insurance on a house is a type of insurance coverage that compensates you for property damage caused by fires, severe storms (tornados, hurricanes, hail damage), explosions, fallen trees, and more. Hazard insurance does not cover floods – if you live in a flood zone, you will need to buy a separate flood insurance policy.
Hazard and homeowners insurance might sound like the same thing, but there are few key differences. First off, hazard insurance only covers structural damage (for example, broken windows caused by a windstorm). A homeowners insurance policy covers structural damage and covers you for personal liability and loss or damage of personal property.
Hazard insurance on a home loan refers to the coverage that is required by a lender to get a house. Lenders require this because the home is not only your investment but also theirs. This type of coverage compensates you for structural damage caused by fires, explosions, and severe weather events. Depending on where you live, you may also need supplemental coverage, such as flood insurance.
Hazard insurance for a condo is very similar to that of a home – it compensates you for structural damage within the interior of your condo. The condo’s HOA likely has an insurance policy that covers the exterior structure of the condominium building and the common grounds, but many lenders will still require you to take out a hazard insurance policy like you would with a home.
A hazard insurance policy is a form of coverage that only protects the structure of your home. It does not insure any personal property inside the home, and it does not cover any injuries sustained in the events that cause the structural damage. Hazard insurance is often built-in to a homeowners insurance policy.
When you buy a home with a mortgage, the lender will require that you have hazard insurance – coverage that will compensate you if the structure of your home is damaged by a fire, certain natural disasters, or an explosion. At the time of the purchase, you often must pay a whole year’s worth of premium.
Hazard insurance covers damage caused to the structure of your house – not to any personal property inside your house (furniture, electronics, etc.). The damage could be caused by a fire, tornado, or hailstorm, for example, but hazard insurance does not cover damage caused to the structure of your home by floods or landslides.
From an insurance point of view, hazard insurance is a type of coverage that protects one of your assets (in this case, your home). It’s like car insurance – you pay a monthly premium, there’s a deductible, and you have different coverage limits. The difference between car insurance and hazard insurance is that hazard insurance does not cover medical liabilities.
The reason most insurance companies will not insure a property with a known landslide hazard is that it’s a huge financial liability and risk to the company. Many policies consider this “Earth movement” and thus exclude it from standard homeowners policies. There are, however, some insurance policies that may cover your property if the landslide is caused by an earthquake.
A Hazard insurance declaration page is simply a document that the insurance company provides you, outlining the types of coverage you have, the limits and deductibles, and how much each one costs you. It will also include other important information such as the insured’s name and the insurance agent’s name.
As the name suggests, lender-placed hazard insurance is when the lender chooses and implements a hazard insurance policy for you. This happens when your hazard insurance provides insufficient coverage or is canceled or lapses. Typically, the borrower has a window where he or she can get a replacement policy, but if not, the lender chooses.
The price of hazard insurance varies depending on various factors – where you live in the United States, the prevalence of natural disasters, and your home’s value. There are also certain conditions that can cause the price of hazard insurance to increase over time. Here are some of the most common questions surrounding the cost of hazard insurance.
There are several reasons your hazard insurance could go up in price. First, if an inspector determines that your home’s structure is in poor shape, the insurance company will raise the rates. Secondly, increased natural disasters in your areas could also be a driving factor that leads to increased hazard insurance premiums.
The average hazard insurance cost is about $1,000 to $1,200 per year. Keep in mind, the more your house costs, the more you will pay for hazard insurance coverage. Most insureds pay .25% to .3% of their home’s value. If you live in an area that is prone to natural disasters, such as tornado alley, you could end up having to pay more for coverage.
When you close on a house, your lender will grant you “conditional approval.” Before you’re granted non-conditional approval, you will be required to show proof that you have hazard insurance coverage. Most lenders will require that you pay the first year of premium for the insurance coverage, and then they may build it into your monthly payment afterward.
Since there are many variables that determine the cost of home hazard insurance, the best way to get an idea of what it will cost you is to get a quote from an insurance company. You can also consider that the average homeowner pays around $1,000 to $1,200 annually for hazard insurance, and then adjust this amount depending on if your home value is above or below the median in your area.
The cost of hazard insurance in California depends on where you live and how much your house costs. You could pay as little as $1,000 per year or $2,000 and upwards. You’ll find higher prices in the areas of California that have high risks of earthquakes and wildfires. Despite the number of natural disasters in California, the cost of coverage is below the national average.
Hazard insurance in Florida is the same type of coverage as other states – coverage that financially protects the structure of your home. If you live in Florida, you should make sure that your hazard insurance covers hurricane damage (if you take out a mortgage on your home, this will likely be a requirement).
Since hazard insurance is a requirement by almost all lenders, you must carry hazard insurance at least until your home is paid off. Depending on the length of your loan, these could be after 15 or 30 years. Even when you pay off your home, it’s still a good idea to have hazard insurance because structural repairs to your home can be very expensive.