Plan Your Home Hazard Insurance to Better Handle Hazards & Perils
TLTR: This article explores the difference between hazards and perils and how insurers apply it to home hazard insurance.
You’ve probably heard the terms ‘hazard’ and ‘perils’ being used extensively in the insurance industry. If you’ve done your research while shopping for insurance, you have definitely come across these terms more times than you could count.
In the insurance industry, professionals tend to use the terms hazards and perils almost interchangeably. They do this while describing risks faced by insureds and insurers. Even if they seem similar, they mean different things.
Let’s find out what each of these terms means and how they affect hazard insurance for your home and business.
In this blog
Understanding Hazards & Perils for Home Hazard Insurance
A hazard is a factor or element that can cause a loss. A hazard can be anything: from a failure to have your car checked frequently or leaving a can of gasoline inside your home.
Peril is a potential adverse event that can cause losses. A peril can be a fire inside your home, a burglary, that may cause damage to your home or belongings.
A hazard increases the possibility of a peril occurring, or makes it worse.
Home hazard insurance protects a homeowner from damages caused by fires, storms, and other natural disasters. It is also known as property hazard insurance and real estate hazard insurance.
An insurer will always consider potential hazards when it comes to their clients. Specific hazards that an individual runs into, can make one client more or less risky than others, due to which an insurer can decide whether to provide them coverage or not.
Insurers usually specify the perils in the contracts they provide to their clients. Most commonly listed perils include fire, wind, water, and theft. Keep in mind that, even if an insurance contract includes the perils, doesn’t mean you are covered for all situations.
Read your policy terms thoroughly, as it will not cover the damage if the neglect of the insured causes the loss. If you purchase a policy without knowing its terms, it could end up putting you in a difficult situation with your insurer.
For example, an insured can claim roof damage after a storm, but the insurer can deny it by citing that the owner neglected its maintenance. In this case, the insurer is denying the claim by citing maintenance neglect as a hazard.
Since hazards are elements that cause or elevate a peril, let’s look at the different types of hazards in the insurance industry.
Types of Hazards for Home Hazard insurance
The industry commonly separates hazards into three categories: physical, morale, and moral.
Physical hazards are behaviors, actions, or situations that can cause peril. It increases the chances of loss due to a lack of proper structure or operation of an insured property. For example, a poorly managed deck with cracks might be considered a physical hazard for a homeowner’s insurance.
Morale hazards happen due to a lack of care from an insured in respect to their residential property and surroundings. For example, an insured leaves their door open while working in the backyard. A burglar takes this opportunity and steals a few valuables. This would be considered a morale hazard since the insured did not take necessary precautions to prevent their belongings from being stolen.
Moral hazards result from acts of fraud committed by an insured. Not to be confused with morale hazard, this type of hazard is wholly related to the wrongful actions of an individual. For example, if a person files a false insurance claim, or provides false information in an insurance application to receive favorable coverage terms, it can be seen as a moral hazard.
Note: The main difference between a moral hazard and a morale hazard is the intent. A moral hazard stems from a person’s deliberate intent to deceive. In comparison, morale hazard results from the carelessness of an individual.
Types of Peril for Home Hazard Insurance
Insurers will typically list down the perils you are protected against in the policy. The list of such perils is quite extensive. According to the Insurance Information Institute, the common perils covered in home hazard insurance policy are:
- Fire and smoke
- Wind and thunderstorms
- Vehicular accidents and collisions
- Watar damage
- Falling objects
- Weight of ice, snow or sleet
- Civil riots
Additionally, the policy will not cover disasters such as floods and earthquakes. These require separate coverage such as flood insurance or earthquake insurance.
What Does It Cover?
Typically, a homeowners insurance policy includes home hazard insurance. This isn’t a policy you can purchase separately. It will cover you when you are in a financial pinch due to damages from a natural disaster. When you purchase a homeowner insurance policy, make sure that it includes three types of protection against hazards or perils.
- Dwelling coverage
- Structures beside your home
- Personal property
And as mentioned before, it also covers the abovementioned perils as long as they are included in the insurance policy.
Usually, natural disasters cause significant financial damages to people’s lives and property. According to Insurance Information Institute, the overall losses from worldwide natural catastrophes in 2020 amounted to $210 billion.
Therefore, to ease the financial burden on yourself a reliable home hazard insurance is necessary.
Although the policy does provide extensive coverage, do take into account that all policies are not the same and can differ. Thus, make a habit of reading through the contents of a policy and consult with a local insurance agent to understand your coverage better.
Home Insurance vs. Hazard Insurance
While home insurance and hazard insurance cover your home, neither is better than the other. Why? Because they are both integral to each other. So, if you decide to purchase a homeowner’s insurance you will need to include hazard insurance with it because of its coverage. And, if you want a hazard insurance coverage you cannot purchase it on its own since it isn’t sold separately. You have to pair it with a homeowners insurance policy. Thus, both coverages are essential if you want to own a personal or business property.
According to Value Penguin, at least 85% of homeowners in the U.S. have homeowner’s insurance. Looking at this, we can say that most homeowners already have a form of hazard insurance.
It is also important to note that mortgage lenders seek out hazard insurance from their clients separately, even if it’s already included as part of homeowner’s insurance. Mortgage companies and lenders require you to have hazard insurance because they want to ensure that their investment is protected. Here, the investment is the home itself. They may also require you to have a specific type of hazard coverage. They will require details such as what hazards are covered, not covered, the minimum coverage amount on the home, and any specific deductibles you’re required to pay.
What is Commercial Hazard Insurance?
Residential properties aren’t the only ones that suffer from the damage brought by natural disasters. So, protecting the physical location of your business and its assets is also essential for any business owner. And sometimes, a standard business owners policy (BOP) might not be enough. This is where commercial hazard insurance comes in. This coverage is also known as business property hazard insurance.
It is a type of business insurance that protects the owned or rented business property. It also protects the equipment and assets that your business uses for its daily operations.
This insurance can help you, as a business owner, to cover the costs to repair or replace:
- Business property & equipment
- Workplace inventory
- Computers & electronics
- Official documents
Note: This coverage can be different based on where you live and the insurance company you consult. Therefore, make sure to do proper research and read the policy details carefully.
Home Business & Home Hazard Insurance
Many people tend to run their businesses from the comfort of their homes. After the onset of COVID-19, working from home is a viable option for many new business owners. According to Small Business Advocacy, there are 31.7 million small businesses in the United States, half of which are home-based.
So, if you run your business out of your home, your standard home hazard insurance may not cover your business at all. Typically, the coverage applies to the house and related home structures such as a garage or a shed. Your business assets are not covered by it. This is where commercial hazard insurance can help you.
You can pair this with your standard BOP as well as general liability insurance and commercial property insurance. This coverage will secure your business and your equipment depending on your needs if you sustain damages from any covered perils.
Note: Many states don’t require businesses to have hazard insurance, but it is still good to have this coverage to protect your assets in times of peril.
To Sum Up…
Knowing the difference between hazards and perils will help you understand the situations in which your insurance policy has your back. By educating yourself on what elements and circumstances pose risk to your assets will help you make sound decisions about the coverage options you need.
A reliable home hazard insurance policy for your home and business will keep you secure if you are based in areas prone to a multitude of covered perils. Make sure to compare multiple insurance providers and take your requirements into account while selecting a coverage option.
Always opt for a tailormade insurance coverage that best suits your needs. Many insurance agents are glad to help you in any way possible so openly communicate with them and find what works for you best.
Did you find this blog helpful? Feel free to let us know your thoughts in the comments below.
Do not hesitate to reach out to us if you have any questions regarding the insurance industry.
Why are hazards and perils not called by the same name as risk?
Insurance professionals use the term peril to associate the cause of loss. And they use the term hazard to identify the condition that cause or increase perils. While these can be understood as risk, they cannot be termed as risk since the term ‘risk’ in itself is defined as an unplanned event that causes financial loss.
To put it simply, a risk is a possibility of a loss. A peril is the cause of a loss. A hazard is a condition that increases the possibility of a loss.
Is hazard insurance the same as renters insurance?
No, it isn’t. Hazard insurance is part of homeowners insurance and it is for those who own a home or an apartment. This insurance covers the residential structure and personal belongings from potential financial loss due to disasters.
Renters insurance is for tenants who rent out a property for living or business purposes. This policy covers the damage to or the theft of the renter’s personal property. It doesn’t cover the damage to the rented property.