Insurance for the home, unlike auto insurance, is not required by law in order to own a home. It will, however, be a requirement for securing a mortgage; so as a homeowner, you will likely have a need for this insurance at some time. Lending companies tend to use the terms "hazard insurance" and "homeowner's insurance" interchangeably, but there is a definable difference between the two.
In terms of insurance, a hazard is a potential cause of loss which can be insured against in exchange for a paid premium. Common hazards for homes would be fire, burglary, vandalism, flood, earthquake, hurricane and water damage. Policies can protect against different hazards, depending on the risks of the geographical area of the home in question.
Hazard insurance is any insurance policy which protects against at least one physical hazard. Policies which protect against more than one hazard at a time are often called comprehensive hazard insurance. Individual hazard insurance policies may also be purchased to protect against otherwise excluded losses, such as earthquake insurance in many parts of California.
Homeowner's insurance combines hazard insurance with liability coverage. This is the most common type of insurance purchased for homes. Many lenders will require liability coverage, and therefore a homeowner's insurance policy, in order to complete a real estate transaction.
Importance of Liability Coverage
The liability coverage on a homeowner's insurance policy protects against damages for which you are found legally liable, such as injuries to others while on your property. It also typically follows you even when away from your home, such as causing injury to another while riding your bicycle or damage to a hotel room. Liability insurance can pay for financial losses which could affect your ability to repay your loan but have nothing to do with the home itself.
Many homeowners' insurance policies also have additional coverages built in. Loss of use coverage pays for your relocation expenses, during repairs, after a covered loss. Identity theft protection pays for financial losses related to the fraudulent use of your identity. These and other benefits may be available under a homeowner's insurance policy but not the more basic hazard insurance policy.
Stephen Hicks has been writing professionally since 2000. He recently published his first novel, "The Seventh Day of Christmas." He spent three years as a licensed life and property/casualty insurance agent in California. Hicks holds a Bachelor of Fine Arts in cinema studies from New York University.