What Does Hazard Insurance Cover?

When you’re going through the home buying process, especially if it’s your first time, it may be easy to get lost through the paperwork, legal terms, and additional things you have to check before you get to move into your new home. One of these things is insurance. 

But insurance is supposed to be simple. You have a car, you get insurance on it, and if something happens, the insurance has your back. Isn’t it the same with homes?! Well, yes and no. 

So many get lost when it comes to property insurance because it isn’t a one policy fits all. Things are a bit more complex, probably because we’re talking about a house, not a car. A home is a bit more expensive than a car.

The type of insurance you buy for your home is homeowner’s insurance. People often think that hazard insurance is something else entirely, but hazard insurance is part of the homeowner’s insurance.  While the homeowner insurance insures the whole property, the hazard insurance is part of the policy and is the part responsible for covering the property’s structure. Many lenders don’t approve mortgages for homes without hazard insurance. The reason for that is because while the rest of the homeowner’s insurance policy may specify the little knick-knacks throughout your home and appliances, the hazard insurance is the only one that covers the home’s ability to stand and not fall apart. But what is covered by hazard insurance depends on what is specified explicitly in the policy.

What Is Covered 

The first thing most people think when they hear of hazard insurance is the Acts of God. Most natural disasters are covered by hazard insurance but check twice if you live in a disaster-prone area. For example, living in a flood-risk area in Florida might mean that you need some extra policy for flood coverage. If you live in California, you might need an additional policy for wildfire coverage. For things like hurricanes or earthquakes, you might also need another policy. The following damages are most often than not covered by hazard insurance:

• Theft and Vandalism
• Fallen trees and other objects
• Damage from vehicles
• Damage from fire and smoke
• Damage from hail and wind
• Damage from snow, sleet, or ice
• Damage caused by electric currents that affect appliances.

What Isn’t Covered

Any damage to personal property or injuries individuals sustained during the ordeal that caused damage to the property is not covered by hazard insurance. Other parts of the homeowner’s insurance can cover some or all of these situations, and they are specified in the insurance policy.

When it comes to natural disasters, while hazard insurance can cover all of them, each one has to be specified within the policy for it to actually cover it. You can, for example, purchase hazard insurance because your mortgage lender requires it, as most do, and you don’t check to make sure you’re covered for wildfires. As it turns out, you aren’t covered through the basic hazard insurance, but you can be covered if you so choose. 

Looking back at the examples we mentioned above, we see that some areas have a bigger risk than others of natural disasters. Because of this, hazard insurance in the areas with a higher risk might not cover the natural disaster that is most likely to occur. The reason for that is this. Picture a high flood risk scenario where one insurance company insures ten homes. Each homeowner pays the hazard insurance fee, which is a fraction of the property’s value of $300,000. If all ten homes are leveled, the insurance company might pay $3,000,000 for all of them. That kind of amount will bankrupt most small or medium-sized insurance companies. This is why the policy that specifies the disaster most likely to hit the area in disaster-prone areas can exponentially increase the policy’s fee because of that higher risk.

Purchasing the right insurance policy for your home isn’t something one should do only because the bank requires it. The bank only requires the bare minimum amount of insurance. If you want your property to be adequately insured, discuss your property with an insurance agent, determine which insurance fits best with the risks the property is exposed to, and make an informed decision for your investment.