Question:

What is homeowners insurance (hazard insurance or property insurance)?

Answer:

Every homebuyer knows what is homeowners insurance or hazard or property insurance since a lender will probably require that a homeowners insurance is prepaid for a year at the time of closing the home loan. This insurance will protect the homeowner from liability in case someone gets hurt on your property; and the home from loss and damage in case of fire, flood, earthquakes, theft, vandalism and other hazards. Most often, specific natural disasters such as storms and earthquakes will require separate hazard insurance coverage.

A typical comprehensive homeowners insurance will cost up to 1% of the loan. Unlike owning a car, you could own a home without hazard insurance, but the lender will require that you purchase a policy or they won't loan you money. After your loan is paid off, you are not required to have property insurance, but it does not make sense to risk your home and belongings.

When selecting the amount of the property insurance, consider at least insuring it enough for replacement. If you can afford it, you could buy coverage for double and triple the house worth, as it will provide you with the best possibility to restore your home in case of loss or serious damage.

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