- Hazard insurance is a type of property insurance purchased by homeowners to protect against fire, flood, wind, earthquakes or other disasters. Other common names for hazard insurance are homeowner's insurance, abbreviated HOI, or just home insurance. In some cases, specific natural disasters and other so-called "acts of God" are not covered in homeowner's insurance, but must be added on through expensive riders or purchased through separate policies.
- The terms of a hazard-insurance policy will vary greatly depending on the financial condition of the buyer and the insurer, as well as specific hazards endemic to the geographical region of the house. Comprehensive homeowner's insurance usually covers damage to property, as well as liability for injuries on the property or damage caused to other property. Hazard insurance tends to focus specifically on property damage caused by discrete sources. If an area is prone to flooding, for example, basic homeowner's insurance probably wouldn't cover flooding; to be insured for that specific occurrence would require a separate (and probably expensive) policy.
- Though the payment on a homeowner's insurance policy goes to the homeowner, the real purpose of hazard insurance is to protect the investment of the lender. This is why it is usually a requirement at closing. If the home is destroyed or damaged beyond practical repair, the ability of the homeowner to continue paying the mortgage will likely be significantly impaired at the same time the collateral securing the loan would be seriously devalued. Hazard insurance for at least the mortgage amount helps guarantee that at least the mortgage will be paid down.
- The premium on a hazard insurance policy--that is, the monthly or annual cost of obtaining coverage--is calculated by the appraised value of the property, its age and construction methods, and the anticipated hazards in the area. The greater the likelihood that the insurance will have to pay a claim, the higher the premiums will be.
- Homeowners should study the terms of their insurance policies very carefully when considering additional hazard insurance. In some cases, damage caused by specific natural disasters may be covered even without specific mention of those causes. If they are not covered, homeowners, like an insurance company, must weigh the cost of the insurance against the likelihood of sustaining property damage and the potential costs.
