Question:

What is the difference between mortgage and hazard insurance?

Answer:

Mortgage and hazard insurance represent two different types of insurance.

Mortgage insurance is required by lenders when the loan is deemed risky - when the borrower makes a less than 20 percent down payment. Private or government mortgage insurance are obligatory in that case and serve to protect lenders from borrowers' default on payments. The mortgage insurance premiums may be paid annually or monthly, or with a big upfront payment. Sometimes the lender will buy the mortgage insurance and pay the premiums instead of the borrower - you will get higher interest rate in that case. But also, mortgage insurance can be cancelled when the loan matures to an extent, so check if you've had the loan for some time - you may be allowed to drop the PMI.

Hazard insurance is also called homeowners insurance and protects you from loss or damage on the property. It should cover the property purchase value in the least. Double the home value is recommended hazard insurance coverage. Usually, the comprehensive hazard insurance policy will include general coverage for personal liability, personal property, some medical payments, perhaps even some expenses. Separate hazard insurance policy may have to be included for specific natural disasters in disaster-prone areas - such as flood in Florida, or earthquakes in California.

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