Definition:
Hazard insurance is the part of a homeowner’s insurance policy that covers damage to the structure of a home caused by specific hazards, such as fire, wind, hail, or lightning.
Example:
A tree falls on David’s house during a severe storm, damaging the roof. His hazard insurance covers the cost of repairing the roof, helping him avoid a major financial setback.
Explanation:
Hazard insurance protects the physical structure of a home from certain types of damage caused by unexpected events or disasters. It usually covers things like fires, storms, theft, vandalism, and other named perils listed in the policy. While "hazard insurance" is often used as a separate term, it’s actually a key part of a standard homeowners insurance policy—not a separate policy on its own.
Mortgage lenders typically require borrowers to have hazard insurance in place before closing on a home loan. This protects the lender’s investment in the property. If the home is damaged or destroyed by a covered event, hazard insurance helps pay for repairs or rebuilding.
Policies vary, so it’s important for buyers to understand what’s included and whether they need additional coverage for floods, earthquakes, or other risks not typically covered under standard hazard insurance.
Why is Hazard Insurance Important in Real Estate Transactions?
Hazard insurance is crucial because it protects both the homeowner and the lender from financial loss due to property damage. For buyers, it offers peace of mind and security. For sellers, having an insurable and well-maintained property can make the transaction smoother. Lenders won’t close a loan without proof of coverage, making hazard insurance a necessary part of nearly every real estate transaction. Understanding it helps ensure the home—and everyone’s investment—is properly protected.