What is risk insurance?

The house where one lives and feels at home is the most important asset; a few luckier people may have more than one house where they live. In most cases, the purchase of a home is an investment, the homeowner will take out insurance to protect the home against covered perils.

Hazard insurance simply means protection against hazard; the term is mainly used by mortgage lenders who require that encumbered properties are at least covered by basic fire insurance. Since the term is mostly used by the real estate industry, the insurance requirement is very basic and only covers the home (building) used as collateral for a real estate loan (mortgage).

The most basic form of hazard insurance is Basic Fire Insurance; in many states, this very simple form covers a property against the dangers of fire and lightning. 99.99% of homeowners would not be satisfied with this coverage alone, although it may satisfy the mortgage lender.

There are many types of property insurance, all of which can be referred to as peril insurance; some examples are as follows: homeowners insurance, home insurance, landlords insurance, home fire insurance, townhome/apartment insurance, fire insurance etc…

The easiest way to help homebuyers is to explain that there are two types of life insurance policies you should purchase; one type is a homeowners policy that primarily provides comprehensive coverage for an owner-occupied property, and the second type is a landlord policy that provides fire and liability coverage for a tenant-occupied property. It is important to note that the definitions within each individual insurance policy state the meaning of the words used in the terms of the policy; if the incorrect policy form is used by the homeowner, there is a good chance that a claim will be rejected by the insurance company on the basis that the insured’s use of the property has been misrepresented.

It is important for a client to ask his/her insurance company to explain the coverage in detail and to ensure that all aspects of the property, attached and detached structures, personal property (personal effects), loss of use, personal liability, medical payments, and planned or unplanned floaters are all explained. Today it is common for a customer to simply compare the premium of one carrier to another without even looking at the coverage limits or in some cases without worrying about what is or isn’t covered; while the aforementioned is more common in areas with low property values, the internet has provided customers with a medium to simply purchase the price and quickly switch from one carrier to another as if the carrier will be penalized and the customer will save a small premium without caution to match the level of coverage purchased.

The insurance premium is calculated by actuarial firms and actuaries employed by insurance companies based on their research into the risk to be insured. Carriers use an industry standard to calculate the reconstruction cost of the home to be insured; the boundary of residence, age of the home, proximity to danger, experience with previous claims, deductible and customer credit (in most states except California), and many other factors are used to assess the risk factor and thereby determine a published premium for the generating policy.

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Since the general public doesn’t often deal with home insurance on a regular basis, it’s important to really research coverage and be careful when securing coverage. While one may think it unlikely that he or she will fall victim to a covered peril, in the event of a claim, the insurance company will interpret the policy coverage as being covered by the insured in order to adjust a claim.

It is suggested that you spend no less than 1 hour checking coverage at least once every three years; the 1 hour does not include shopping for the price. If a customer does not wish to speak to an agent, the customer may contact the current insurance company and ask the customer service representative to take the time to answer any questions about the policy. For those who take this subject lightly, we can’t think of anyone who would want to face a devastating event that could come to light and for which a few minutes of advice could have changed course in securing cover.