Hazard Insurance

Hazard Insurance Definition

Hazard insurance is an insurance policy that protects the property against losses and damages when perils happen. Perils are unexpected events such as a fire or theft.

Explanation

Mortgage lenders require the homeowner to purchase hazard insurance to protect the lender’s interest in the property.

The property owner must provide proof of an active insurance policy with adequate coverage to meet the requirements of a mortgage contract.

A lender has the legal right to purchase hazard insurance for the property and charge the homeowner when the property owner fails to obtain a policy.

The hazards covered by the policy vary with the geographic location of the property, but typical perils include fire, hail, theft and vandalism.

Homeowners insurance endorsements add coverage for hazards excluded by the regular policies.

These additional riders might include damage from hurricanes, flooding, or earthquakes.

Other endorsements, requiring additional fees, cover special hazards such as storm surge, volcanic eruptions, falling objects, nuclear power plant radiation release, and rioting.

Policies limit the type of insurance coverage and the amount of reimbursement for each type of claim filed. Policies also typically limit the number of claims filed during the policy coverage.

Insurers may also refuse to write a policy for homes located in what the company determines are high-risk geographic locations.

Homeowner insurance policies typically cover theft of personal items.

Policies have a limit on the amount covered for reimbursement and the type of valuables covered under the theft category.

Electrical damage caused by faulty wiring, utility power surges or damage related to water infiltration or a lightning strike are other typical coverages.

Vandalism, structural damage from fire or lightning (unless the house is located in a high-risk fire area), and water damage from household accidents are also generally covered.

Homes in areas designated as flood zones, or areas with a high risk for flooding, typically require special insurance policies.

Insurance policies for high-risk areas, like the National Flood Insurance Program, are backed by the federal government.

Hazard insurance policies typically cover newer roofs, but most exclude older roofs, or homes in areas with a high risk for extreme winds.