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Hazard Insurance: What It Is and How to Buy It

Updated on July 17, 2018
Chuck profile image

A part-time college economics & finance instructor who began his career in banking, Chuck frequently writes on money & economics on HubPages

Insurance to protect a person from financial loss due to damage to their property.

Hazard insurance refers to insurance that protects property owners against financial losses due to fire, storms and other natural hazards that can damage property. These other disasters can include vandalism, flooding, damage resulting from failure of building systems such as water damage due to pipes freezing and bursting or a sewer backing up.

Hazard insurance is sometimes referred to as property or property and casualty insurance, fire insurance, flood insurance, etc. Homeowners insurance is what many people have in mind when they think of hazard insurance, but homeowners insurance is a policy that combines both hazard insurance and liability insurance into one policy for homeowners.

Fire is a Major Cause of Property Damage

Fear of destruction of home by fire is a major reason for homeowners to buy Homeowners Insurance as well as a major reason why mortgage lenders require owners to have insurance on the property.
Fear of destruction of home by fire is a major reason for homeowners to buy Homeowners Insurance as well as a major reason why mortgage lenders require owners to have insurance on the property. | Source

Types of Insurance, Exclusions and Extras

Hazard insurance does not cover all types of damage to property. Like any other type of insurance, hazard insurance is a legal contract between the insurance company issuing the policy and the individual or business purchasing the policy.

An open perils policy (with perils being dangers or threats that can result in damage to property) is one that covers damage from all types of dangers to property except those specifically excluded in the policy. In other words, if you have an open perils policy and your property is damaged, the insurance company will compensate you for the damage so long as the cause of the damage was not specifically mentioned in the policy as being excluded.

A named perils policy is just the opposite. Here the policy only covers financial losses due to property damage being caused by a peril specifically listed in the policy.

In addition to compensation for the cost of repair or replacement of the damage, policies will also often include the cost of hotel accommodations if homeowners have to live elsewhere while the property is being repaired, the cost of clean-up in the cases of fire and flood, etc..

Most Policies Don’t Cover Damage Resulting From Acts of War

In practically every case, financial losses resulting from damage due to acts of war are excluded. Since the U.S. has not had a major war fought on its soil since the Civil War and no serious foreign invasions since the War of 1812, this exclusion has not been much of a concern.

However, the September 11, 2001 terrorist attacks on the World Trade Center and the Pentagon have raised questions about whether or not losses due to terrorist attacks can be considered acts of war and thereby excluded from coverage.

For individuals this has not been much of a concern but insurance companies have started offering terrorism insurance and many businesses have been buying this insurance.

In addition to war, insurance companies will often exclude threats that are common in an area such as hurricanes in Florida and other states along the southern Atlantic and Gulf coasts, earthquakes in California and floods in areas prone to frequent flooding.

Storms are a Source of Property Damage

Car driving through flooding following an Arizona summer monsoon storm.  These storms result in insurance claims for damage to homes and vehicles.
Car driving through flooding following an Arizona summer monsoon storm. These storms result in insurance claims for damage to homes and vehicles. | Source

Special Coverage for Floods and Other Natural Disasters

Insurance to protect against losses due to hurricanes and tornadoes in areas where these types of storms are a common threat and earthquakes in areas like California is usually available as either a rider attached to an existing policy or as a separate hurricane or earthquake policy.

Of course, such riders and policies are very expensive. The Federal government also has a special program to provide flood insurance for properties in areas that are prone to frequent flooding.

Purchase of this insurance is mandatory if there is a federally insured (FHA or VA) mortgage on the property. Most other mortgage lenders also require that such properties carry this insurance as a condition of the mortgage.

Forest Fires are a Hazard to Property in Many Parts of the American West

Trees on Mt. Lemon Arizona that were ravaged by a forest fire that destroyed property in town of Summerhaven below.
Trees on Mt. Lemon Arizona that were ravaged by a forest fire that destroyed property in town of Summerhaven below. | Source

Homeowner’s Policies are Usually a Combination of Hazard and Liability Insurance

As mentioned above, most homeowners buy a special type of insurance called homeowners insurance to protect their property. Homeowners insurance is a combination hazard insurance policy and liability policy which protects the property owner against financial loss due to both damage from natural causes as well as claims against the property owner for injury or damage to other people or property resulting from negligence or other actions by the property owner.

The liability portion of the policy covers things like injury or damage to other people or their property include such things as a wind storm causing a tree to fall on a neighbor's house, an above ground pool in breaking and flooding a neighbor's basement, a visitor slipping on an icy sidewalk and breaking a leg, etc.

While it is a good idea for homeowners to have such a policy regardless of whether or not they have a mortgage on the property, they will usually be required to purchase such a policy if they borrow money to purchase the property or to obtain cash for their equity in the property.

A mortgage loan is secured by the property and if the value of the property is decreased due to physical damage to the property or due to a lien being attached to the property as a result of a lawsuit the mortgage lender wants to make sure insurance is available to provide funds to cover the damage.


Where to Buy Homeowners Insurance

Most major insurance companies have a property and casualty division which will sell homeowners and other types of hazard insurance including automobile collision and liability insurance.

Since car insurance is mandatory in most states, a good place to begin looking for homeowners or other types of hazard insurance is the agent or company from whom you purchased your car insurance. Some companies offer discounts for people who purchase both their car and homeowners insurance through them.

Some banks and real estate companies have insurance subsidiaries or offer insurance brokerage services for both their customers and others seeking insurance coverage.

Independent insurance agents represent multiple companies and can often provide not only good advice on buying homeowners and hazard insurance but are also able to shop multiple companies for rates and policies best suited to an individual's needs.

A good agent will also often handle, at no charge, the paperwork associated with filing a claim with the insurance company when your property is damaged.

Finally, there is always the Internet where you can both search for insurance companies and information about them and their policies as well as buy the insurance directly.

Rising Water from a Heavy Rain Storm Can Cause Damage to Property

Violent rainstorms can result in water damage to house and its contents while accompanying heavy winds can result in other damage.
Violent rainstorms can result in water damage to house and its contents while accompanying heavy winds can result in other damage. | Source

© 2006 Chuck Nugent

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    • profile image

      PALLAVI PALIWAL 

      7 years ago

      THAT WAS A NICE POST

    • Chuck profile imageAUTHOR

      Chuck Nugent 

      9 years ago from Tucson, Arizona

      Crisrin - contact an insurance agent (go to Google Maps, click on find a business then type "Insurance Agents" and your city/zip code and you should get a long list of agents in your area. The other option is to type "Homeowners Insurance" in a Google search box and you should come up with numerous sites offering Homeowners insurance on line. Or you can go directly to an insurance site by typing progressive.com, insurance.com or other companies offering Insurance search services online in the URL address bar on your browser.

    • profile image

      Crisrin 

      9 years ago

      I would like to know how can i buy hazard and liabity insurance and how munch is it?

    • christineross97 profile image

      christineross97 

      10 years ago

      I like this hub. I can see so much effort you have put to come up with this great hub. You have brilliantly gathered and put together all the ideas and informations that are full of helpful hints. Check out this one lens that I like too http://www.autoinsuranceopen.com/all-auto-insuranc... They have wide selection of car insurances and rates that might help you too.

    • profile image

      Gabe  

      10 years ago

      Yeah thats true.. i get plenty of clients for Hazard Insurance. Since i own CheapHazardInsurance.com my quotes are free so its up to them to shop around and i suggest they do that.

      Gabe

    • profile image

      attract wealth 

      11 years ago

      Chuck,

      That was a really good post. It helped me to make sense of some of the issues with the subject. There is another good blog on the same topic that I was reading a while ago.

    • Chuck profile imageAUTHOR

      Chuck Nugent 

      11 years ago from Tucson, Arizona

      Holly, Thank you for visiting my HubPages and for your comment. In answer to your question, I am certain that any good insurance agent will inform a prospective client of hazzards they need to insure against. This is not only good client service, but benefits the agent financially as the more insurance they sell the higher their commission. This is also a good reason to find an agent that is both knowledgable and trustworthy as you want good information but you also don't want to buy more insurance than you need.

    • profile image

      Holly 

      11 years ago

      Im curious if an insurance company advise their policy buyers of the types of the insurance they would need if they know that that policy buyer is in an area that is prone to fire, wind, storms, earthquakes and floods?

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