All You Need to Know about Hazard Insurance

When I attempted to refinance my home last year, the new lender promptly requested a hazard insurance policy for my house. This request caught me off guard. While I was aware of the necessity for homeowner’s insurance, the concept of hazard insurance was unfamiliar to me. I wondered if it was another expense I needed to cover to secure the loan. I certainly hoped to avoid a situation similar to when I was persuaded into unnecessary auto coverage during a car lease a few years ago.

Fortunately, my concerns were somewhat exaggerated. Hazard insurance is typically included in most homeowner’s insurance policies. It safeguards against structural damage caused by various hazards, such as fire. The lender’s insistence on hazard insurance was warranted because unlike standard homeowner’s insurance, which addresses liabilities arising from accidents involving people or pets, hazard insurance focuses solely on structural damage.

However, it’s important to note that you can’t forgo purchasing regular homeowner’s insurance and solely opt for hazard insurance. A hazard insurance policy cannot be obtained independently.

Hazard insurance typically provides coverage for damages resulting from natural disasters such as fire, wind, or hail. It also extends coverage to other events like explosions, power surges, water damage from appliances or burst pipes, theft, and vandalism. However, each policy varies, so it’s crucial to review the specifics when shopping for coverage.

For instance, most hazard insurance policies exclude coverage for flood or earthquakes, which can be disappointing for residents in areas prone to such events, like Southern California. Living atop an active fault line means experiencing frequent mini-earthquakes. However, the absence of automatic disaster coverage might actually be advantageous, as including it could potentially drive up home insurance premiums even further.

Homeowner’s insurance typically incorporates some level of hazard insurance, albeit not always explicitly labeled as such in the policy language. Sometimes, structural coverage is outlined separately under categories such as dwelling coverage, encompassing the home’s structure itself along with other structural elements like detached garages, fences, or decks. The key takeaway is that hazard insurance safeguards the structures of your home.

If you’re unsure whether your policy meets the requirements of a mortgage lender, it’s best to let them handle the assessment. Simply provide them with a copy of your policy or quote, and they will conduct their own review to determine its adequacy.

When I sought homeowner’s insurance, several providers declined to offer a quote altogether, citing an inability to provide coverage for my house. It appears I reside in a high-risk area, particularly prone to wildfires. Due to this heightened risk, they expressed difficulties in accurately pricing a policy for my home.

There are various other factors that may lead insurance companies to refuse coverage against hazards. These encompass lapses in coverage, a history of frequent claims, a criminal record, and even conducting work from home. In certain instances, despite willingness to pay a higher premium, individuals may still be deemed too risky to insure by insurance companies.

One company, Nationwide in my case, managed to provide a policy quote for me. However, they stipulated that I install a home alarm system. This system had to encompass both burglary and fire alarm monitoring. Given the pandemic’s circumstances, where we’re all spending more time at home, this requirement felt somewhat burdensome. The home alarm seemed redundant, but I had little choice but to comply. Consequently, I installed it and subscribed to monitoring services, adding several hundred dollars to the overall cost of insuring my home.

In your pursuit of hazard insurance, you may encounter similar prerequisites. It’s not uncommon for residences in extremely cold climates to necessitate alarms with temperature monitoring. After all, a frozen pipe can rupture and cause significant damage within a short span of time.

Many individuals exploit a common loophole by obtaining hazard insurance to satisfy their mortgage lender’s requirements, only to cancel it shortly after the deal closes. While technically frowned upon, there’s little evidence of lenders conducting spot checks on their borrowers to verify ongoing coverage. It seems they may only take notice if mortgage payments are missed, in my personal opinion.

However, I can genuinely attest that I maintain my hazard insurance policy. Recently, my city experienced a significant wildfire scare, albeit on the opposite side of town from where I reside. Thankfully, we remained safe from this particular disaster. Nevertheless, many of my friends lived in the evacuated area. I even accommodated one friend and their family for four days. Those with insurance sought refuge in hotels, as they could be reimbursed for the expenses. Unfortunately, my friend couldn’t afford the high hotel costs and had nowhere else to go.

The images of the fire that week were truly frightening. Flames came perilously close to some people’s backyards, and even street signs in my friend’s neighborhood caught fire. If not for the heroic efforts of firefighters to contain the blaze and prevent it from engulfing homes, many residences would have been reduced to ashes.

The potential aftermath of such a catastrophe is unimaginable. Nearly all my possessions are housed within my home. While material items can be replaced, cherished memories such as family photos and sentimental gifts are irreplaceable. Without hazard insurance, I would bear the responsibility of rebuilding my home and covering living expenses during the reconstruction period.

A single natural disaster has the potential to obliterate not only your entire life savings but also much more. While hazard insurance may come with a hefty price tag, it could spare you from a lifetime of remorse. Yet, it’s worth noting that the likelihood of such an event occurring is relatively slim. I’ve personally weighed the pros and cons of this insurance and made my decision. However, determining its worth may hinge on factors like your location and whether your home is susceptible to extreme weather phenomena such as tornadoes or wildfires. Ultimately, the choice is yours to make.