Are Hazard Insurance and Homeowner’s Insurance the Same Thing?
When you buy a home, your lender will require that you get homeowner’s insurance. However, you may hear them throw around other terms as well, including hazard insurance. Is there a difference? And which coverage does the lender require?
We help you discover these answers below.
What is Hazard Insurance?
Hazard insurance provides protection for things that happen to your home’s structure. Think of things like hail, storm, or tornado damage. It also includes things that are not a result of Mother Nature, but some other reason that affects your home’s structure. These things include fire, smoke, and water damage.
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The hazard policy covers the cost to rebuild your home or to repair the areas of the home that are no longer livable because of the damages. This policy does not cover things like personal belongings even if the damage is caused by any of the above mentioned scenarios.
What is Homeowner’s Insurance?
Homeowner’s insurance is like the generic word for all insurance coverage your home. It includes things like the hazard insurance, personal property, and liability insurance. Think of the homeowner’s insurance like the tree and the branches are each of the different policies you must carry in order to be properly protected.
It makes it much easier to have one policy – the homeowner’s policy, to manage and pay for each month. This way you have the different coverages but don’t have to worry about paying different bills and/or different insurance companies.
What do Lenders Require?
Lenders want to know that you have enough coverage to rebuild your home should disaster strike. This protects their investment. Otherwise, if you didn’t have the coverage, your home would likely remain unbuilt, which would leave you with nowhere to live and no reason to pay your mortgage. This leaves the lender without the money they lent you and without the collateral to sell off to make the money back.
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At the very least, lenders will require you to have enough hazard insurance to cover the replacement cost of your home. This allows room for inflation if your home was to burn down or get knocked down in a tornado 10 years down the road. Speaking of tornadoes, though, some lenders may require other hazard coverage as well. For example, if you live in a tornado prone area, you may need tornado coverage or if you live in a flood zone, you’ll need flood insurance.
Liability Insurance is Important Too
Aside from what your lenders require, you’ll want to protect yourself financially as well, which is why liability insurance is crucial. Liability insurance covers you should someone get injured on your property or even if you cause damage to someone while you are away from home. It helps cover you financially if the person comes after you for damages.
Personal Property Coverage
Last, but not least, you’ll want personal property coverage. This helps cover you in the event that something happens to the items inside your home. Think of your valuables, furniture, clothing, and other belongings. If a fire struck your home and burned it to the ground, your hazard insurance would not cover those items. It would help cover the cost of rebuilding your home, but you would still be left with no personal belongings.
Personal property coverage helps cover the loss of these items and more. It also helps cover you in the face of theft. Make sure to talk to your agent about the coverage limits though, especially if you have a large number of valuables in the home.
Hazard insurance is a requirement if you have a mortgage on your home, but should be carried even if you don’t have a mortgage. Creating the perfect homeowner’s insurance policy will give you each of the types of protection you need so that you are covered under any type of circumstance.
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