When you purchase homeowners insurance, your policy will include protection against certain perils – ie hazards – to the structure of your home.
Therefore, hazard insurance would simply be part of your policy related to potential damage that the structure of your home could suffer.
Differences in coverage
There are differences in how homeowners insurance policies operate. The HO-2 form includes coverage against 16 named perils:
- Lightning or Fire
- Hail or Windstorm
- Damage caused by an aircraft
- Riots or civil disturbances
- Smoke damage
- Damage caused by vehicles
- Falling objects
- Volcanic eruption
- Pipe freezing
- Damage from the weight of snow and ice
- Water damage from plumbing, heating, or air conditioning
- Water heater cracking, tearing, and burning
- Damage from electrical current
The HO-3 form of homeowners insurance is more inclusive, and instead covers perlis except those specifically excluded.
When do we need hazard insurance?
When purchasing a new property, having hazard insurance will never be a requirement. However, this doesn’t mean you are completely free to decide whether you want to buy it or not.
In home mortgages lenders usually will require you to have a certain level of hazard insurance. The mortgage is secured against the value of the property. Damage from something like a fire would reduce that value, so lenders insist on insurance against these kinds of hazards.
Why is hazard insurance important?
It is very common to see damages in properties all over the country from perils, as they are in fact, some of the most frequent homeowners insurance claims.
Amounts of coverage
Because the costs can mount up, deciding on the value of your coverage will be crucial to secure your investment on a property.
Actual Cash Value will reimburse you for the replacement cost minus any depreciation.
However, in Sean La Rue Home Loans we suggest to go for Replacement Cost Value, or Extended Replacement Cost Value, as they are better choices to cover any future damages to your home.
Replacement cost will cover the cost of the repair or replacement of damaged property with materials of similar kind and quality – ie depreciation will not be deducted.
Extended replacement cost provides extra protection – usually a set percentage above your policy’s limits to rebuild your home. This would guard against sudden increases in costs to repairs.
So that’s all for today, hope you found this article useful so far and don’t hesitate in reaching me out if you have any questions or need a consultation.