As of December 19, 2017, MyQL is now referred to as Rocket Mortgage.
If you’re relatively new to the world of homeownership, you may have come across a few terms that you didn’t quite understand. Moreover, you may have encountered concepts that sounded similar but actually serve completely different purposes.
One confusing topic of discussion is hazard insurance. What exactly is it, and how is it different from homeowners insurance?
Hazard insurance protects you, the homeowner, against structural damage caused by natural disasters; homeowners insurance is a financial protection against theft and damage to your home and belongings sustained in more mundane ways.
The goal of hazard and homeowners insurance is to make sure that your house and belongings are covered in the event of an incident, whether it’s a leaky faucet that causes a kitchen flood or a hurricane that floods your whole house.
Let’s take a closer look at the difference between hazard and homeowners insurance and how you know you’re getting the right insurance policy to cover you in an emergency.
What Is Hazard Insurance?
Hazard insurance covers the damage caused by a natural disaster and typically only covers the actual structure of your home, not any of your personal items inside the house.
Here are common types of perils that can cause damage that’s covered by hazard insurance:
To recap, if a flood or tornado damages your home, the hazard insurance policy would pay for the cost to repair or rebuild your home.
However, if a fire blazed through your bedroom and you were left with only the clothes on your back, the hazard insurance would not be enough to cover the cost of replacing your clothes and personal effects.
That’s where homeowners insurance takes over.
What’s the Difference Between Hazard and Homeowners Insurance?
Homeowners insurance protects you financially from various types of damage, as specified in your policy, as well as theft. It also covers medical bills if someone is injured at your house and any legal costs if they decide to sue you, in addition to damage caused by:
An insurance agent will typically offer a homeowners policy designed to cover the cost of your personal property, liability and other basic coverage, as well as protection against hazards.
In other words, many people have just one policy – homeowners insurance – that covers basic liability, as well as the option to include hazard coverage.
However, some mortgage lenders require that you have supplemental hazard insurance based on where you live. For example, if you live in the “tornado alley” area of the Midwest, chances are your mortgage lender will require you to have tornado coverage on your home.
What’s Hazard Escrow?
The term “escrow” refers to an account used to pay real estate taxes and homeowners insurance that is split into monthly installments and included in a client’s mortgage payments along with principal and interest.
Mortgage lenders may automatically add an escrow account to their policies or give clients a choice in the matter. For example, Quicken Loans offers escrow accounts that can be managed online on MyQL.
The payments are split up into 12 payments across the span of 12 months. The amount is calculated on a yearly basis according to the actual amount of the insurance premiums. Since the premiums fluctuate, the amount has to be recalculated every year.
What’s Right for You?
Before you buy a house, make sure you find an insurance agent you trust and feel comfortable with so you know you’re getting the right insurance policy to cover you in an emergency. And make sure you also talk to a Home Loan Expert, who will help you every step of the way and ensure you’re making the right financial decisions for your situation.
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