What is risk insurance?

Risk insurance, also called home insurance or property insurance, provides coverage for specific natural hazards such as fire, wind, earthquake and vandalism. Many homeowners first purchase a "comprehensive" form of insurance, which may include the most common damages, but then seek additional coverage for specific hazards. Those living in floodplains can buy water damage insurance, for example, while California homeowners can add earthquake insurance.

As there can be a definite difference between home insurance and risk insurance, it is worth asking the broker about coverage before agreeing to the contract. Some comprehensive policies already cover certain risks, so additional insurance may not be strictly necessary. Others may not fully cover area-specific hazards, such as dam damage or vandalism during construction. Truly comprehensive home insurance should cover both liability and physical damage. A risk policy is usually geared towards physical damage to the property rather than the owner's liability for accidents on the premises.

During the closing of the sale of a property, the buyer should almost always obtain some form of risk insurance. The terminology for this coverage may change to home insurance or comprehensive home insurance, but it all means the same thing for closing attorneys and lenders. Buyers are strongly advised to purchase at least enough insurance to cover the cost of the mortgage, which will provide enough protection to restore the property if it burns down the day after the sale is completed.

Premiums for this type of insurance are usually calculated on the appraised value of the property, the age of the building, construction methods and known natural hazards in the area. Insurance agencies may offer additional risk policies such as flood, earthquake and hurricane coverage, but homeowners may have to compare benefits with higher premiums. Some policies may seem frivolous, but the damage from a rare earthquake in North Carolina, for example, can be substantial. Florida hurricane insurance may seem automatic, but some homeowners can save money on premiums by not adding it to a comprehensive policy, as damage can be covered without the need for additional coverage.

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