What Is Hazard Insurance
for Homeowners?
For many families, home is where the heart – and the money – is. American families have 68% of their wealth stored in their homes, which is why many people view their house as both a place to live and as an investment. When you get homeowners’ insurance or hazard insurance, you’re not just meeting a mortgage lender’s requirement, you’re also protecting your investment.
However, the several different insurance policies that you can buy can confuse many homeowners. They want protection, but they don’t want to pay too much. And no one wants a surprise when they’re already stressed about filing an insurance claim.
If you’ve just bought or refinanced a home, you should buy hazard insurance. Here’s
everything you need to know about this part of your homeowner’s insurance policy.
What is Hazard Insurance?
Hazard insurance, sometimes called dwelling insurance, is a kind of insurance that protects your main dwelling.
It’s not separate, and can’t be purchased separately, from homeowners insurance. Although, it only covers your home’s structure. Other clauses in your homeowner’s insurance policy address liability for injuries that happen on your property, identify theft, or high-value objects; hazard insurance relates directly to the home itself.
Who Requires Hazard Insurance?
Your mortgage lender will require that you have hazard insurance. It’s the minimum coverage that they insist you carry because it protects the asset that secures their loan.
Lenders won’t require you to carry liability coverage, which would pay out if someone was injured on your property and got medical bills or sued you, or other coverage because it doesn’t impact them.
Before you close on your home or refinance, you’ll have to show the bank proof of insurance. If your insurance lapses at any time that you own the home and still have a mortgage, they’ll have the right to purchase a policy on your behalf. There’s no way to get out of paying for hazards.
What if you buy a cash home or have paid off your mortgage? Without a lender’s requirement, you could skip having hazard insurance and hope to be able to pay for any future incident out of your pocket, but that’s a dangerous gamble.
According to the insurance information institute, between 2014 and 2018, the average claim paid by homeowners insurance companies for medical bills was $3,707. Average claims for bodily injury and property damage were $26,872.
Keep in mind, insurers paid out these claims after the homeowners paid their deductible. Typical deductibles are often between $500 to $2,000, bringing the total cost of that broken leg when a neighbor trips on your front steps to $5,000. Before deciding that you don’t need homeowners insurance, ask yourself if you could reasonably cover the costs of a lawsuit or medical bills.
What Does Hazard Insurance Typically Cover?
If you’re required to purchase homeowners’ insurance or realize that it’s a good idea even if your home is paid off, what will it cover? Hazard insurance typically covers everything that could damage or destroy your home. Most policies include coverage for:
- Damage from a fire
- Hail damage
- Lightning striking your home
- Other forms of Damage
- Vandalism that harms your house
- Fallen trees that hit your home
- Theft as it impacts your property
- Vehicles that run into your home
- An explosion
The most common claims filed against homeowners insurance relate to wind and hail.
A policy that covers hail damage could pay for a new roof if you live in Minnesota, but in Arizona you’re probably worried about wind damage. Our monsoon season topples trees, landing them on power lines or your roof. Windstorms rip shingles or tiles off roofs, and lightning could start a fire.
Hazard insurance would cover all of these incidents, though exceptions apply. It’s important to understand what your policy covers because one bad storm could cause significant damage. Even if you live in a peaceful neighborhood, theft is a risk. If you’re a victim of theft, your homeowner’s insurance policy pays to repair any damage the thieves caused. Broken windows, a split frame around the back door, or damage to the exterior as the thief hunts for valuables can add up to costly repairs.
Hazard insurance doesn’t pay to replace anything that the thieves took, however. That’s covered under personal property protection or, in the case of expensive jewelry or other high-ticket items, policy riders.
While a vehicle running off the road and crashing through your bow window might not seem like a strong possibility, hazard insurance would still kick in to pay for the damage. An explosion may also seem like a long shot, but again, it’s good to know you wouldn’t have to pay for all the repairs yourself.
What Does Hazard Insurance Exclude?
Like any insurance policy, the hazard insurance coverage will have exclusions. Most important to Arizonans is that hazard insurance often excludes flood damage from our frequent flash floods or monsoon flooding.
If you want protection from flood-related damage, you’ll have to purchase a separate flood insurance policy.
Hazard insurance also doesn’t include the following, which are part of your overall homeowner’s insurance policy:
1Personal liability coverage
The neighbor’s kid falls out of your tree and breaks their arm. Personal liability coverage pays their medical bills.
If you are liable for something that happens on your property, this clause helps you cover those costs.
2 Personal property
If a flood destroyed your furniture and ruined half your wardrobe, it’s the personal property clause in your homeowner’s insurance policy that would help you recover.
While homeowners insurance policies don’t usually cover flood damage to the building, they do protect the items within your home
3Identity Theft
Not all homeowners insurance policies offer this protection, and it could be optional, but insurance companies are increasingly lumping identity theft protection in with homeowners’ insurance.
This coverage would help with legal fees, the costs of replacing IDs or fighting charges, and more.
4 Riders for High-Value Items
Do you have a collection of Rolex watches? An extremely expensive television?
Your agent may advise that you add a rider to your policy. Riders extend your policy’s coverage beyond the standard clauses.
If you purchase the minimum dwelling insurance required by your mortgage lender, it might not include any of the above protections. That’s why hazard insurance is often called “minimum” coverage.
How Much Hazard Insurance Coverage Do You Need?
Determining the right amount of coverage can be pretty complicated, which is why most homeowners choose to work with an insurance agent.
Mortgage lenders often set minimums, designed to protect their investment, but above those minimums, you’ll have a wide range of choices.
The coverage limits you select should consider the following:
1Your Home’s Age.
Older homes could have custom window sizes, which cost more to replace. Years of use could have caused more deterioration, leading to a higher likelihood of damage from wind or hail storms. If you own an older home, you might need more coverage to ensure that you could fully repair any covered damages.
2 Replacement Cost vs. Actual Value.
When you purchase a homeowner’s insurance policy you can choose to either cover the home’s replacement cost or to cover the home’s actual value. Covering the replacement cost, or 100% of the costs to rebuild, will have higher premiums. Actual value would pay out your home’s depreciated value, which is unlikely to be enough to rebuild.
3Quality and Type of Materials.
To calculate the replacement cost or the likely cost of any repairs, look at the quality and type of materials in your home’s construction. A clay tile roof costs more to replace than an asphalt shingle. Repairing an exterior wall made of stucco will be more expensive than brick. It’s unlikely that you’d want to downgrade after a tree falls on your roof and cracks some tiles.
4 Your Home’s History
If you live in a flood plain, or previous owners filed homeowners insurance claims for flooding, it should influence your coverage decisions. The same applies to hailstorms or fire damage. A home’s history isn’t always negative, however. If the previous homeowner did just put on a new roof, selecting lower coverage and a higher deductible is less of a risk.
5Local Building Costs.
What would you pay in your area to replace a roof? How much are labor and materials for rebuilding a sunporch that burned down? Construction costs vary widely depending on where you live, the availability of labor, and the demand. If you select a coverage limit that’s insufficient for what you’d need, you’ll be stuck making up the difference.
6 The Neighborhood You Live In.
If you live in a high crime neighborhood where you have a higher change of a break-in or theft, it could be worth it to pay for more hazard insurance coverage.
7Other Risk Factors
Do you have a pool in your backyard? A trampoline? Both of these increase your risk that someone could either get injured on your property or file a lawsuit. While this won’t impact your hazard insurance, your agent will likely suggest higher liability coverage.
Once you’ve considered all of these factors, your agent will help you select coverage limits and
a deductible.
Hazard Insurance Coverage Limits and Deductibles
Each clause in your homeowner’s insurance policy has an upper limit. This is the point at which the insurance company stops paying for any claims.
Your agent will look at all the characteristics that would impact a future homeowners’ insurance claim to help you land on the best coverage limits and deductible for you.
Coverage limits and deductibles all influence the premiums you’ll pay for insurance. A good agent can help you determine the best balance between them so that you have a reasonable premium.
The more an insurer might have to pay out on your home, the more risk to them. They’ll charge a higher premium to compensate for this risk.
The best policy is one that covers your dwelling and ensures you’d have an intact place to live after a covered event but also has an affordable premium and deductible. It’s hard to balance all these components unless it’s your job, which is why we recommend reaching out to an agent today.
The independent agents at Insurance Pro Az have years of experience putting together the best policies for Arizonan homeowners. If you’re shopping for hazard insurance, reach out today.
We’re here to help! Call us today.
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I hope You Understand What Is Hazard Insurance for Homeowners?
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