Hazard Insurance: What Is It? Do You Need One?

Posted on: Apr 18, 2024 | 3 mins | Written by: HDFC ERGO Team

Hazard Insurance: What Is It? Do You Need One?

Hazard insurance is also known as property insurance or dwelling coverage, and it is a policy designed in a way that it assists homeowners in recovering financial losses for damage caused by specific hazards or perils. These risks usually encompass fire damage, lightning strikes, windstorms, hail, explosions, vandalism, and theft. Policy for hazard insurance grants compensation to repair or replace the insured property in the case of perils that are covered by the policy.

Differences Between Hazard Insurance and Homeowners Insurance

Home hazard insurance and homeowners’ insurance are different types of policies against different risks that homeowners are exposed to.

Apart from these, hazard insurance, also known as property insurance or dwelling coverage, is often designed to help homeowners with insurance packages that cover damages to the physical structure of a home caused by certain perils such as fire, lightning, windstorms, hail, and vandalism. It guards the house itself as well as any accessory structures like a garage or deck. Mortgage lenders may require hazard insurance to safeguard their financial risk. As a result, this insurance may be compulsory.

However, homeowner insurance satisfies a wide range of needs when combining hazard insurance with property protection and liability coverage under one umbrella. Furthermore, the homeowner's insurance is expected to provide coverage not only for the structure of the house but also for the owner's goods against theft, damage, or loss, either inside or outside the house. Finally, it grants the homeowner immunity from personal liability if someone is injured on their property by negligence and the homeowner is found accountable for the injury.

Hazard insurance, which only insures the structure of a house against listed perils, is far different from homeowner's insurance, which covers the property and provides for liability and valuable personal possession. Homeowners insurance is often advised for you should not have any worries.

When Hazard Insurance is Required?

In most cases, homeownership is facilitated by obtaining hazard insurance when taking a mortgage loan to buy a house. Insurance companies insist on getting hazard insurance to secure their stake in the land. Thus, it allows the homeowner to become immune to particular hazards such as fire, burglary, vandalism, and natural disasters. Lenders lessen the risk of financial loss connected to damage or the destruction of the property through their insurance requirements. Owners of the homes must keep the mortgage hazard insurance coverage for as long as the mortgage lender needs and own the property to comply with lender requirements and shield their investment in the property.

Benefits of Hazard Insurance

Hazard insurance offers several benefits to homeowners:

1. Property Protection:

Homeowners insurance protects the physical structure of the house and any best-matched purpose structures (i.e., garages, sheds, other structures) against losses in-dwelling to specified catastrophes, such as fire, tornadoes, hail, vandalism, and theft.

2. Financial Security:

Hazard insurance will pay for repairs and even rebuilding of the home if there is damage through valid perils and the homeowner may avoid paying out-of-pocket big amounts in case of such damage.

3. Mortgage Requirement:

Apart from most mortgage lenders insisting on hazard insurance as a condition under the agreement to safeguard their investment in the loan, homeowners can contain frequent mishaps.

Inclusion & Exclusion

Hazard insurance covers the loss that can be caused by the specific perils mentioned in the policy. Commonly included are fire, lightning, hurricanes, hail, explosions, vandalism, and theft. Still, certain risks may not be covered like floods, earthquakes and war. Homeowners shall need to acquire different insurance policies to cover the excluded risks.

Hazard Insurance Cost

In India, life insurance, commonly called hazard insurance, property insurance, or home insurance by homeowners, to have a backup in case of any major uncertain event. Premiums paid for hazard insurance in India are subject to variation, depending on factors such as the location, size, and value of the property, and the chosen extent of the coverage.

The insurance premiums in India for hazards are usually computed based on the total sum insured, which is the total reconstruction cost that is estimated for the property in place of any damage or loss. The premium rates can differ between 0.1% and 2% of the sum insured yearly, and the possibility remains dependent on the construction type, the property’s usage, security level, and insurance business matters such as its underwriting guidelines.

Some practical instances include the hazard insurance premium, which could be ₹10,000 and ₹2,00,000 or more for a property, with the sum insured of ₹1 crore.

For homeowners in India, it is advisable to evaluate their insurance requirements carefully, check out the offers of different insurance companies, and also take into consideration issues like coverage limits, deductibles, and additional benefits to choose hazard insurance coverage for their residential property.

Conclusion

The role of hazard insurance in securing homeowners’ assets is certainly underestimated because of the unseen risks and dangers that may go beyond the termination of a dwelling. Thus, even though hazard insurance is a common requirement of mortgage lenders, it provides a financial shield as well as mental security to homeowners. Through being well-versed in the key principles of home hazard insurance, homeowners have the opportunity to make educated judgments concerning their investment and to be sure their property is adequately protected from the covered perils as well as the broader range of coverage that is provided by home insurance.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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