Hazard Insurance is a term associated with home loans/immovable property. Let us understand the term in totality by breaking it down into parts…
Hazard means risk of any type. This risk may relate to occurrence of natural calamities like earthquake, flood, and severe storms including hail storm or any other natural disaster. The risk may also relate to naturally occurring fires, theft and vandalism. The definition of hazard/risk may vary depending upon where the property is situated.
Insurance as we all know can be understood as an activity that helps you stand in the same capacity after the occurrence of unfavourable event, as before. You are compensated for all the loss covered under the terms of the insurance. Insurance policy is a legal contract between the insured named in the policy and the insurer (the company giving insurance coverage)whereby the insurer promises to make good the financial loss suffered by the insured , due to occurrence of the events mentioned in the contract.
From the above discussion it is clear that hazard insurance is a phenomenon whereby loss occurring due to damage to the your property (basically home) is made good for , making you stand in the same financial position as before.
When we talk of hazard insurance we basically are referring to home insurance. The homeowner’s insurance policy has the coverage for common hazards as already discussed above. Any specific hazard coverage of which may be required depending upon the location of property, has to be specifically insured against through hazard insurance.
Need for hazard insurance
Hazard Insurance is generally required by lenders of home loans at the time of giving you loans for your new home. This assures them that in the event of occurrence of any untoward incident damaging the structure of your home (called hazard here) his loan amount would be made available to him through the proceeds of insurance.
Importance of hazard insurance
Home is one of the basic necessities for every person and so protecting it against a hazard becomes very important. Hazard insurance is of utmost importance for the lender of the home loan as for you as a receiver of the home loan as it provides coverage for the structure of the home for which the loan is being taken. Although provision of home insurance is a global phenomenon, the term hazard insurance is used mainly in case of India. In other countries, insurance for the structure automatically forms the part of home insurance policy.
Hazard insurance, sometimes referred to as dwelling coverage, covers natural or man-made perils causing damage to the structure of the home. Such perils may include fire, natural disasters, robbery, sabotage, blast, and damage caused by fixtures like air conditioner, geyser, etc.
How is hazard insurance different from home insurance?
The difference lies in the basic coverage being offered by the two. Whereas hazard insurance covers only the building of the home, home insurance provides coverage under following areas –
- Hazard/building insurance – insurance for the structure or the building
- Liability insurance – coverage against the liabilities arising out of injuries happening on the property
- Contents insurance – coverage against the damage to personal belongings existing in the home
Sometimes coverage is also provided for cost of alternative accommodation in case named peril damages the house.
However, type of coverage differs with respect to the type of policy taken by the insured.
Thus, hazard insurance has narrower perspective than home insurance.