We just don't understand, what hazard insurance means, although we know it is required by our mortgage lender. Can you explain this term, and are there different types of policies we should be looking at?
A: The best way to understand hazard insurance is to call it "homeowner's insurance." While this is technically incorrect, it will help you distinguish this form of insurance from title insurance, mortgage insurance or life insurance.
Your mortgage lender will insist that you maintain sufficient insurance coverage for the amount of your loan. However, in my case, while this may be adequate for your lender, it is not sufficient for you.
What does the insurance cover? Homeowners coverage falls into three basic areas: protection for your house, protection for your possessions in your home, and protection against liability claims because of property damage or bodily injury.
There are several different forms to choose from. The basic form (HO-1), the broad from (HO-2) or the comprehensive from (HO-5). The basic form covers you against such perils as fire,windstorm, civil commotion, smoke, vandalism and malicious mischief, and theft, for a total of 11 types of perils. The broad form adds a number of other perils to your coverage, including collapse of buildings, accidental discharge of water, freezing of plumbing, heating and air conditioning systems and falling objects.
The comprehensive form protects you against these same perils and is called the industry "an all risks" policy. Although you might suspect that such a policy is an inclusive, you would be well advised to read the exceptions to the policy to determine the exact nature of your coverage.
Your insurance agent or company will be most happy to discuss the various types of policies with you. However, here are some questions to ask:
If I have a loss, will the insurace company reimburse me fully for my loss, or will a percentage of that loss be deducted from my coverage?
Is there an automatic escalator, where the coverage of the policy is increased yearly as the property values go up?
Is the policy covering me for the full replacement value or only the actual cash value? Actual cash value means the replacement cost of the damage property, less depreciation due to age and use. Thus, you may want to pay a small additional premium for the replacement value contents to be covered.
Are your personal items which have any significant value covered? You may want to purchase a "floater" policy, which will include such items as jewelry, furs, cameras, and stamp collections.
Additionally, keep in mind that you need not purchase your insurance policy from you mortgage lender. You have the absolute right to shop around for the best insurance coverage, and you should have ample time to make you comparison. However, don't over-insure. Land cannot be destroyed and need not be considered in your calculations.
Benny L. Kass, a Washington attorney, answers questions through this column. Write him in care of the Real Estate Section, The Washington Post, 1150 15th St. NW, Washington 20071.