Hazard Insurance Definition
Hazard Insurance is kind of property insurance which gives coverage of the protection to property owners from damage to property caused by natural calamities like fire, flood, cyclone, storms and other natural events and according to this policy, the property owner will get the compensation to cover the cost of damage to property due to natural calamities where the premium for this policy depends upon the cost of property and risk covered.
Hazard insurance covers the property protection policies from natural calamities, i.e., an act of god. It is sometimes necessary as a normal home insurance policy does not cover every type of natural calamity and risk. The premiums for this insurance are costly as compared to a normal home insurance policy as it covers more risk than the normal home insurance policy. Generally, it covers the structure of the home only and not property inside it, i.e., if damage occurred due to the structure of the home or property, then the property owner gets the compensation according to hazard policy, but if damage occurs inside the property then property owner won’t get compensation as per hazard policy, but it can take coverage of damage to personal belongings due to natural calamities.
How does it Work?
- The hazard insurance policy protects the property owners against damaged caused by natural calamities. It is an extension of homeowners’ policy. If the property owner wants to cover the risk of damage to property structure caused by natural calamities, which include damage due to earthquakes, floods, landslides, storms, etc. then a hazard insurance policy is to be taken to cover the risk. The policyholder can get the coverage of personal belongings also through this policy.
- Now, to get this type of insurance policy, one should approach the insurance company. The insurance company then comes and visits the property and gets the valuation of property depends on the current market value and then will decide the premium to be paid by the policyholder depends upon the value of the property, its location, and risk of loss occurred to property due to natural calamities.
- Then after a premium is decided which the policyholder pays and gets the risk coverage as per terms of the policy. This policy can only be for one year and can be renewed.
- Now, if natural calamities occur and loss to property structure like the collapse of walls etc. then the property owner will approach to the insurance company for the claim, and then the insurance company makes the survey of the property and determine the value of loss and value of re-establishment and then it pays the amount of cost to recover the damage as a claim of policy.
- Sometimes in the case of mortgage of property, the lender might also be required to get the hazard insurance of property as the lender wants full coverage of insurance and then also hazard policy to be taken by property owners.
What does Hazard Insurance Cover?
Hazard insurance provides coverage for the structure of home or property against certain risks as covered in the policy. The policy will also specify which calamity or risk is excluded from the policy.
Usually, the followings are included in the coverage of this policy –
There are two types of hazard policy (i) named peril policies and (ii) open peril policies.
- In named peril policies, the structure of the property and personal belongings are covered.
- Open peril policies cover every danger except those excluded by insurers.
Hazard Insurance vs. Home Insurance
- The hazard insurance policy covers the risk of damage that occurs to the property or home structure due to natural calamities, whereas home insurance policy covers the risk of theft, legal liability, medical bills if anyone gets injured due to home. It includes additional living expenses.
- Home insurance covers the internal risk attached to the property or home, whereas the hazard insurance covers the external risk like damage to the structure only.
- A premium of hazard insurance will be based on the value of the property or home and area in which it is located, whereas the premium of home insurance will be based on the material used while construction of the home, it focuses on quality.
Who Should take out Hazard Insurance?
Sometimes in the case of the mortgage, the lender will ask to take the hazard insurance as the lender wants to get the cover of internal as well as external risk related to the property. Also, it is suitable for those who live in risky areas where the occurrence of the natural calamities or risk of natural calamities is more. It is also useful for those who want the full risk coverage internal as well as external risk for them as this gives assurance to owners that full risk related to property is covered.
Hazard insurance is the type of insurance which covers the protection of risk occurred to property due to natural calamities like flood, landslides, etc. It covers the structure of the home. Hazard policy generally is an extension of homeowners’ policy. In homeowners’ policy, internal risk and liabilities related to home are covered, and in hazard policy, external risk related to the property related to its structure is covered. Sometimes in case of a mortgage, the lender will ask to get a hazard policy as it wants to cover the whole risk related to the property.
Hazard policy cannot be taken without home insurance. But in areas of certain risks such as floods or landslides, homeowners often opt to take out separate insurance to cover specific contingencies. Claim in case of hazard insurance will be settled if a natural calamity occurs, and it damages the structure of the home, and the claim will be the amount of cost of damage.
This has been a guide to Hazard Insurance and its definition. Here we discuss how it works, what it covers, along with its differences from home insurance. You can learn more about from the following articles –