Is hazard insurance necessary?

Your mortgage provider says you need hazard insurance; your insurance company says you don’t. What gives? Who is right? Actually, they’re both kind of correct.

What is hazard insurance?

Hazard insurance generally refers to events that threaten your house. A homeowners insurance policy is what protects you financially against these hazards. Commonly covered hazards include:

• Fire and smoke
• Severe storm (hail, wind and lightning)
• Explosions
• Theft and vandalism
• Falling objects
• Snow, sleet and ice
• Water damage (typically excludes flood)
• Power surges
• Civil unrest and riots

Your location may dictate additional hazards you need covered. In California, you might need your policy to state that it covers damage from earthquakes and some locations require coverage for sewer or water backup. A VIU by HUB Advisor can walk you through what is necessary, and what is advised, based on your location.

What is not covered by hazard insurance?

In general, if it’s not in the list above, or a location-based required addition, it’s not covered in your hazard insurance policy. However, you can always talk to our advisors about coverages for additional hazards including flood and earthquake insurance. If there’s something that you want covered, it’s worth speaking to an advisor sooner than later as some additional coverages don’t immediately go into effect.

What is the difference between hazard insurance and homeowners insurance?

Hazard insurance is part of your standard homeowners insurance coverage policy. They are linked and intertwined. If you have homeowners insurance, you have hazard insurance included. Think of it like this:
homeowners insurance coverage = hazard insurance + other coverages.

Mortgage providers want to be sure that the house is covered in case of hazards. That’s the part of your homeowners policy that they care about; they leave decisions about non-hazard coverages up to you and your casualty insurance company.

What is hazard insurance versus mortgage insurance?

These seem related because they’re both often required by mortgage providers, but they’re actually quite different. Hazard insurance protects a house; mortgage insurance (often known as PMI) protects a bank. Essentially, if a homeowner stops paying their mortgage, mortgage insurance will reimburse the bank a portion of the principal.

Mortgage insurance is generally required until a homeowner has 20% equity in a house. This can be achieved through a 20% down payment or a combination of a lower down payment plus months or years of monthly payments.

Who should get hazard insurance?

Just about everyone who owns a house. Mortgage lenders will require hazard insurance and even once a house is owned outright, this hazard insurance coverage is wise because it offers protection against unexpected events.