Hazard Insurance (Homeowners Insurance)
Hazard insurance protects homeowners from property damage. Learn coverages, exclusions, and why lenders require homeowners insurance.
Definition
Hazard insurance, typically encompassed within homeowners insurance, covers physical damage to a property caused by hazards like fire, lightning, windstorm, hail, vandalism, and certain types of water damage. Policies may also include liability coverage for injuries on the property and additional living expenses if the home becomes uninhabitable. Lenders require borrowers to carry adequate insurance to protect the collateral for their loans. Coverage amounts should reflect reconstruction costs rather than market value. Standard policies often exclude floods and earthquakes, which require separate policies. Homeowners should review coverage limits, deductibles, and endorsements to ensure adequate protection.
Why It Matters
Your lender requires coverage, but the amount they require protects their loan, not your house. Rebuilding cost is what today's labor and materials charge, and policies written five years ago are commonly short by six figures. The two perils Washington homeowners actually face, earthquake and flood, are excluded from every standard policy.
Examples
A 1962 Bellingham house insured at $310,000 burns and the rebuild bid comes back at $438,000, leaving the owner $128,000 short.
Three carriers decline a Chelan County property over wildfire scoring and the fourth quotes $4,900 a year, which breaks the debt-to-income ratio the loan was approved on.
An owner adds an earthquake endorsement for $1,100 a year with a 15% deductible, meaning a $400,000 rebuild still carries a $60,000 share.
Tips
Get insurance quotes during your inspection window rather than after. A wildfire-zone decline or an old-roof refusal can sink financing, and that is a contingency-period discovery.
Buy extended or guaranteed replacement cost if your carrier offers it. It pays 25% to 50% above the dwelling limit when rebuild bids run over the policy amount.
Raise your dwelling limit after any remodel over $25,000, and take room-by-room photos once a year. Claims settle on what you can prove was there.
Related Terms
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