Hazards insurance policy is also known as property or homeowners insurance. This type of insurance offers compensation for the damage caused to the property caused due to natural hazards such as earthquakes, fire, wind, theft, lightning, windstorm, hail, floods, mudslides and vandalism. Majority of homeowners buy a comprehensive insurance coverage, which covers most part of the possible damages. People living in flood plains prefer adding hazard insurance for water damage to their insurance policy whereas people living in earthquake prone areas may buy hazard insurance for earthquake.
Some homeowners insurance readily provide coverage for specific hazards, hence the need for separate hazards insurance does not become necessary. Some traditional homeowner's insurance policies might not provide full coverage against hazards that are specific to any particular area such as damage caused due to vandalism during construction work.
The buyer needs to buy hazard insurance during the completion of the sale process. The buyer is encouraged to buy a hazard insurance equivalent to cover the cost of mortgage. This hazard insurance protects the buyer from losses due to unpredictable and unfortunate events like fire where the complete property is destroyed after the sale is completed. The buyer can restore the property by claiming the damages if he/she has taken hazard insurance.
The premium amount for hazard insurance policy depends on various factors such as the age of the property, appraised value of the property, known natural hazards in the area in which the property is located and the construction methods of the property. Homeowners can also get additional insurance coverage against natural hazards such as hurricanes, floods and earthquakes. However, the premiums for the additional coverage are high and the homeowner has to weigh the benefits offered against the high premiums before adding these coverages in hazard insurance.
Insurance companies providing hazard insurance can reimburse the policyholder (homeowner) in three different ways as follows: Full replacement: will pay for full replacement of damages to the agreed limit of coverage as per the policy terms and conditions, Guaranteed Cost: will make full repayment for complete rebuilding of your home, whatever the costs are, and Cash value Insurance: will pay an amount equivalent to the market value of your home
Overview: Some of the hazard insurance policies may appear frivolous; however, the damage that is caused by a rare earthquake can be substantial. Hence, it's better to secure your financial condition for such unfortunate events. It is recommended that you buy a hazard insurance policy.