Before you buy a home, it’s important to understand what type of home insurance coverage you will be required to purchase if you take out a mortgage or a loan to purchase your home. Below, we outline what hazard insurance is and why most mortgage lenders require it.
What is hazard insurance?
Hazard insurance is a type of coverage that can be found in many homeowner’s insurance policies, including condo insurance policies. It is a type of dwelling coverage that covers damage to the physical structure of your home. For example, you can receive a payout under the hazard insurance portion of your home insurance policy if your property is damaged after a fire, hail storm, or other type of incident. Hazard insurance is typically only available as part of a homeowners insurance policy, although some insurers may offer it as a standalone policy. Find out more about the differences between home insurance and homeowners insurance here.
Is hazard insurance required in Canada?
Hazard insurance is not government-mandated in Canada. In fact, no type of home insurance coverage is required in Canada. That said, it is possible for your mortgage lender to stipulate that you must purchase hazard insurance in order to qualify for a mortgage.
Since the majority of first-time home buyers in Canada need to take out a mortgage to buy a home, you won’t notice very many home insurance plans that do not contain hazard insurance. The reason that mortgage lenders often require hazard insurance is to protect their investment. Many lenders will even stipulate a specific amount of hazard insurance that you must add to your homeowner’s insurance policy. This will be the case whether you have a vacation property & cottage insurance policy or a high-value home insurance policy.
Please note that even if you don’t have a mortgage or your lender doesn’t require you to buy hazard insurance, doing so is still a smart decision if you are a homeowner. Otherwise, one accident could end up costing you tens or even hundreds of thousands of dollars out of pocket. If you want to be prepared and have peace of mind, purchase hazard insurance.
Hazard insurance vs. homeowners insurance
Many people wonder if hazard insurance is the same as homeowners insurance and the answer is not exactly. Hazard insurance is ultimately a type of coverage that is included in many homeowners insurance policies. It is another name for dwelling coverage, which is a type of property damage coverage designed to cover the physical structure of your home against losses. For example, if the foundation, walls, windows, roof, or doors in your home were damaged in a fire, you would file a dwelling coverage claim with your provider to cover the cost of repairs. Therefore, while hazard insurance and homeowners insurance are not two terms that can be used interchangeably, hazard insurance and dwelling insurance are:
Homeowners insurance policy
To give you a better idea of how hazard insurance differs from a homeowner insurance policy, we explain what types of coverage are typically included in homeowners insurance policies. Please note that since homeowners insurance is not legally mandated in Canada, it is up to the policyholder to decide what types of coverage to include with their plans. For this reason, policies can look very different between policyholders. Generally speaking, by purchasing any type of home insurance plan, you will have financial protection if your home suffers damage or losses.
Dwelling coverage
As mentioned above, dwelling coverage is another name for hazard insurance and is designed to protect the physical structure of your home, from the roof to the foundation.
Personal property coverage
Personal property coverage, which may also be known as contents coverage, is a second type of property damage coverage that can be found in most home insurance plans in Canada. However, unlike dwelling coverage, it can pay to replace or repair the personal belongings inside your home if they are damaged due to a covered loss. Types of items that personal property coverage can pay to replace include clothing, furniture, decor, electronics, musical instruments, sporting equipment, and more.
Other structures coverage
Other structures coverage is an extension of dwelling coverage in that it covers property damage to additional structures around your home. If you have detached structures on your property, such as a shed, gazebo, greenhouse, fence, or swimming pool, purchasing other structures coverage may be wise. Basic dwelling coverage generally does not cover any detached structures, even if they are on your property.
Loss of use coverage
Loss of use coverage, which is also referred to as additional living expenses coverage, can pay for you to live elsewhere if your home is temporarily uninhabitable due to a covered loss. For instance, if a fire broke out in your home and you couldn’t live in it until the repairs were complete, you can be reimbursed for the cost of additional living expenses, such as renting a hotel or buying meals, under the loss of use coverage portion of your policy.
Personal liability coverage
Personal liability coverage protects policyholders against third-party claims of bodily injury or property damage that are brought against their homes. This could happen if a guest or visitor injures themselves while on your property and decides to sue. In this scenario, you could file a personal liability insurance claim with your home insurance provider and your legal fees and any applicable medical fees would be covered.
Hazard insurance policy
Hazard insurance, as you now know, is not a type of insurance policy. Rather, it is a type of homeowners insurance coverage. More specifically, it is a type of home insurance coverage that is designed to cover losses and damage related to the physical structure of your home. However, in order to be covered by hazard insurance, the physical damage to your home needs to have occurred due to an insured peril.
Hazard insurance either protects against named perils or all perils. You will need to read through the terms and conditions of your policy to find out which is accurate for you. When purchasing a home insurance policy, you should have a firm grasp of how named perils and all perils differ so that you can make the best possible decision for your needs.
When you have a named peril policy, your hazard insurance will cover you for losses that occur due to the specific perils or risks that are listed in your policy. These typically include fire, lightning, theft, smoke, vandalism, and more. Meanwhile, all peril policies are more comprehensive, protecting policyholders against almost any peril that they can think of except for those that are specifically excluded from their policy. Examples of common exclusions in hazard insurance policies are the collapse of internal structures, the discharge of pollutants, or earth movement, such as earthquakes.
Named peril policies are more popular than all peril hazard insurance policies. However, all peril hazard insurance policies offer broader coverage. Given this, all peril policies are usually more expensive than named peril policies.
What does hazard insurance cover?
Most hazard insurance policies cover the following perils:
Fire
If a fire breaks out in your home or damages it, your hazard insurance will likely cover it. If the damage to your home is severe enough that you need to move out while it is repaired, your insurance policy can also pay for you to rent a hotel or live elsewhere until you can move back in. You can find more information on fire safety, including tips on how to avoid house fires, here.
Hail
Hazard insurance usually covers hail damage, which, if the hail is large enough, can damage your home.
Lightning
If lightning strikes on your property, it can cause serious damage. The good news is that lightning is a commonly included peril in home insurance policies.
Theft
Theft is another worst-case scenario for many homeowners. Thankfully, hazard insurance almost always covers damage caused by theft or vandalism.
Fallen trees
If a tree falls on your home and damages it, whether that tree was on your property or not, you can file a claim under the hazard insurance portion of your policy and have the tree removed and the damage to your home repaired.
Car running into your home
If a car or aircraft runs or flies into your home and damages it, this structural damage will likely be covered by the hazard insurance portion of your homeowner's plan.
Explosions
Explosions and riots are two more perils that most hazard insurance policies cover. Explosions in homes most commonly occur due to gas leaks, which can cause major damage.
Other perils that your hazard insurance policy may cover:
- Sudden damage from a power surge
- Smoke damage
- Volcanic eruptions
- Water overflow or discharge from household systems like plumbing, air conditioning, and appliances
- Freezing of household plumbing or HVAC systems
- Sudden tearing, cracking, or bulging of a hot water system, steam system, air conditioning, or fire-protective system
What doesn’t hazard insurance cover?
Hazard insurance typically does not cover the following perils unless you purchase additional coverage, such as sewer backup coverage or overland water coverage:
- Flooding
- Earthquakes
- Wear and tear
- Sewer backup
- War or nuclear action
- Intentional damage by the policyholder
Please note that you can prevent flooding and sewer backup by installing a sewer backup detection device or sump pump in your home. By doing this, you could also qualify for a home insurance discount.
If you still have questions about which perils are and aren’t covered by hazard insurance, reach out to BrokerLink today. A BrokerLink insurance advisor can help explain complex industry jargon and help you find a quality policy, whether you are after a tenant and renter insurance policy or you’re looking to bundle your home and auto policies.
How much does hazard insurance cost?
The cost of hazard insurance varies between policies and depends on a number of factors. For example, the coverage limit and deductible you choose for hazard insurance and whether you choose a named perils or all perils policy will all determine how much you pay for your policy.
In addition, your claims history and the size, age, location, and value of your home will all play a role in determining your overall home insurance premium.
If you want to save money on your home insurance plan, reach out to BrokerLink. One of our licensed insurance brokers can give you advice on changing house insurance and what discounts you might be able to qualify for in order to reduce your premium, such as the insurance discount for home alarm systems.
Contact BrokerLink to learn more about hazard insurance and home insurance
If you still have questions about hazard insurance, homeowners insurance, or even mortgage insurance, reach out to BrokerLink today. We can give you tips on how to buy a home insurance policy, file a hazard insurance claim, or even refinance your mortgage in Canada.
Get in touch with BrokerLink for a free home insurance quote now; whether your home is a condo, an apartment, or a townhouse, BrokerLink can help you find the insurance solutions you need.
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