In most people’s lives the largest investment they’ll ever make is to buy a house, and Hazard Insurance protects their biggest investment.
- Slip & Fall Accidents
- Weather Damage
- Dog Bites
And many other potential liabilities.
Should a person’s house ever “Burn to the Ground” without Hazard Insurance, that person could be financially ruined and could literally end up homeless.
Another thing to consider, Hazard Insurance protects the structure and your personal property, but only up to the insurance policy’s “Coverage Limits”.
If a homeowner owns a valuable coin or stamp collection or any other unusually high value items, then the homeowner must pay the additional cost to add a “Rider” to the insurance policy to provide the extra insurance coverage.
Depending on where a person lives and their needs, Hazard Insurance may or may not include all the coverage they might need.
All Hazard Insurance Policies have what’s known as a the “Declarations Page” which Lists each “Category” of insurance coverage, and their respective Limits of Coverage.
Homeowners are encouraged to carefully “Check & Review” the Declarations Page to make sure that the insurance policy provides the necessary insurance coverage.
Almost all insurance companies hide behind the term “Act of God” and use that term for types of damages that they don’t want to cover.
Some of the types of coverage that insurance companies don’t typically cover are:
- Damages caused by Social Unrest
If coverage is even available for “Act of God” losses from an insurance company, the homeowner would be required to pay for additional coverage or obtain a separate policy.
In California just about every insurance company won’t insure a home or any other structure if its location is in close proximity to “Brush”.
In this situation, there’s a Government Agency called the “California Fair Plan”, which works with insurance companies in providing the requested insurance coverage, and simultaneously “Shares the Risk” with the insurance companies when they provide insurance coverage in a brush area.
Another item to consider is that insurance companies have requirements relating to Deferred Maintenance, and many insurance companies will NOT insure a property if the property has:
- Roof Damage
- Large Cracks
- Un-Permitted Additions
If a homeowner’s property has one of the above “Insurance Issues” then it might be difficult to obtain Hazard Insurance, but the good news is that there are “Non-Prime” insurance companies that might provide insurance coverage, but the costs will be more than traditional insurance companies.
Having hazard insurance coverage is paramount to all homeowners to protect their investments.
Lenders also need Hazard insurance to protect the security for their loans, which is the Subject Property.
There’s an old adage in the Real Estate world…………… “Land doesn’t Burn” but if the structure on the property burns to the ground, and all that’s left is a “Concrete Foundation”, the possibility exists that the lender’s loan could exceed the remaining value of the land and the lender could end up losing money.
When a Lender/Investor funds a loan there is a procedure where the Lender/Investor’s information is added to the Insurance Policy, this is known as the “Lender’s Loss Payable Endorsement”.
This procedure doesn’t “Specifically” Insure the Lender/Investor, it’s the homeowner that’s insured, but it does allow the Lender/Investor to receive any Notice of insurance Cancellation should the homeowner NOT pay the insurance premium. This gives the Lender/Investor the opportunity to “Pay the Insurance Premium”, so the loan will continue to have insurance coverage.
Whether you’re a homeowner or a lender it’s important to check with the insurance agent or directly with the insurance company to confirm that there’s adequate insurance coverage to protect the interest of the homeowner and the interests of the lender.
Here at Westar Lending Group, we’re a “Make Sense Lender”, where we always put our Borrower’s needs first and we always go the extra mile to get our clients the money they need.
We focus on solutions, not problems!