Real Estate 101 - Insurance


	What is Hazard Insurance?
	When should the buyer get an insurance on the newly purchased property?
	Does hazard insurance cover damage caused by an earthquake or flood?
	What is Home Owner's Insurance?
	How is Home Owner's Insurance different from Hazard Insurance?
	What is Earthquake Insurance?
	What is Flood Insurance?
	What is a Blanket Insurance Policy?
	What is an Impound account?
	What are the typical contents of an impound account?
	Do all loans require that an impound account be set?

What is Hazard Insurance?
Hazard Insurance is an insurance that provides coverage against the property damage caused by fire or storm. The insurance is supposed to cover the cost of re-building the property.
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When should the buyer get an insurance on the newly purchased property?
When a property is purchased, the buyer's lender provides details on the kind of policy that needs to be in place before the purchase transaction closes. It's best for the buyer to select the insurance provider well in advance. Let the insurance provider know who the escrow officer is and the escrow officer should know who the insurance provider is. When the lender's documents come to the escrow, the insurance provider will be informed by the escrow officer. The insurance provider will b sending the policy details to escrow. Usually on the date of closing, one year worth of premium may need to be paid. The lender may also require an impound account to be set up with 2 months worth of premium.
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Does hazard insurance cover damage caused by an earthquake or flood?
Usually not! If one wants coverage against earthquakes, one needs to obtain earthquake insurance. For covering damage caused by flood, a flood insurance is required. For details please contact an insurance provider.
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What is Home Owner's Insurance?
Home owner's insurance is an insurance that provides coverage against the property damage & theft of personal belongings.
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How is Home Owner's Insurance different from Hazard Insurance?
Hazard insurance is the minimum insurance coverage against property damage by fire & storm and is required by the lender. Home owner's insurance is an extended coverage that provides protection against theft and vandalism in addition to the coverage against fire & storm. In most of the cases, the home owner's insurance policy can be extended to cover personal liability. For details please contact an insurance provider.
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What is Earthquake Insurance?
Earthquake insurance is an insurance that provides coverage against the property damage caused by an earthquake.
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What is Flood Insurance?
Flood insurance is an insurance that provides coverage against the property damage caused by a flood. If the property is located in a flood hazard zone, the buyer's lender will require that the buyer obtains a flood insurance policy in addition to a regular hazard insurance policy.
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What is a Blanket Insurance Policy?
A blanket insurance policy is an insurance policy that provides coverage for more than one property or person.
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What is an Impound account?
An impound account is an account set up by a lender for payment of property taxes, hazard insurance and other recurring expenses such as mortgage insurance and flood insurance. An impound account is also known as an escrow account (different from escrow).
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What are the typical contents of an impound account?
Typically, an impound account has following prepaid recurring costs: Hazard insurance premium for 2 months, mortgage insurance premium for 2 months (if applicable), flood insurance premium for 2 months (if applicable) and property taxes for 6 months.
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Do all loans require that an impound account be set?
Not necessarily! Usually loans with low loan-to-value ratio (higher down payment) do not have an impound account requirement. Also, in some cases the requirement of having an impound account is waived in return for additional closing costs charged up-front.
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