Homeowners (Hazard) Insurance

Home insurance, also commonly called hazard insurance or homeowner’s insurance is the type of property insurance that protects homeowners against damage from fire, vandalism, wind, severe storms or other events.

It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one's home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance.

As long as the specific event is covered within the policy, the insurance policy will pay out to cover the cost of the damage incurred.

Coverage for personal property may not be included depending on the occupancy of the property as determined by the terms of the policy.

Depending on the coverage amount and terms of the policy, the insurance may pay the actual value of the property or it may pay the replacement value.

In a replacement value policy, the structure will be replaced whether it has depreciated or appreciated.

An actual cash value policy, the policy will pay the structure less depreciation.

The following chart shows the limited coverage that is provided with an extended coverage endorsement homeowner policy:



Water damage (other than flood)

Flood from rising water

Fire damage

Personal contents in the home

Hail or Wind damage*

Termite damage

Tornado damage*

Foundation Problems

Hurricane* (except on the coast)


Vandalism (except Riots)


Hazard Insurance Requirements

Homeowner/Fire Insurance

Acceptable Carriers

  • Policy must be written by an insurance carrier that has an AM Best rating of A and a financial class size of at least VIII or a financial performance rating (FPR) of 6 or better.

  • State FAIR plans and Texas Windstorm are not rated by AM Best  but are considered acceptable because they are funded by each state  

Dwelling Coverage 

  • Standard Extended Coverage Endorsement is required.

  • Policies that exclude or limit coverage (in whole or in part) for windstorm, hurricane, hail damages, etc. are not acceptable, unless a separate policy or endorsement that provides adequate coverage for the limited/excluded coverage is provided.

  • Amount of Coverage. Minimum acceptable coverage equal to the lesser of
    • The total of all liens against the property 
    • Or 100% replacement cost value of the improvements. 
  • Deductible amount up to $5000.00

Required Insurance Notice Provided at Closing

  • Coverage must equal the lesser of the following:
    • 100% of the insurable value of the improvements, as established by the property insurer, or
    • the unpaid principal balance of the mortgage, as long as it equals the minimum amount — 80% of the insurable value of the improvements—required to compensate for damage or loss on a replacement cost basis
  • If it does not, then coverage that does provide the minimum required amount must be obtained
  • The insurance company providing coverage must have a rating in the latest edition of “Best’s Insurance Guide,” must be licensed in the State in which the property described above is located, and must be licensed to transact the lines of insurance required in the transaction
  • Policy shall provide at least “Broad Form” coverage on properties of one to four units, and at least “Vandalism & Malicious Mischief” on properties with over four units, with no deviation
  • Homeowners policies must provide coverage equal to “HO 2” form
  • The maximum deductible must not exceed 5.000% of the face amount of the insurance policy
  • Policy must provide coverage for a term of at least one year
  • Premiums may be paid on an annual installment basis only if the policy provides that the Lender will be notified in writing of cancellation 30 days prior to expiration of coverage, for any cause
  • Binders are not acceptable, unless otherwise mandated by state law
  • If any existing policy is provided which will expire within from the date of the recording of this loan, said policy must be renewed for the required term as noted above
  • All forms and endorsements pertaining to the Lender’s requirements must appear on the “Declaration Page” of the policy
  • New policies must be accompanied by a signed “Broker of Record Authorization” if borrower(s) have changed Insurance Agents
  • Lender may require borrower to provide evidence of insurance on or after the 15th day before the termination date of an existing insurance policy.  If this requirement is not met, the LENDER OR ITS SUCCESSORS OR ASSIGNS MAY AT THEIR OPTION, BUT WITHOUT OBLIGATION TO DO SO, PROVIDE COVERAGE TO REPLACE ANY EXPIRING POLICIES WHICH HAVE NOT BEEN PROPERLY RENEWED
  • The premium for such coverage will be remitted promptly by the undersigned, or Lender my charge borrower's account for the cost thereof 
  • The policy must include a standard “mortgagee loss payee clause” (Lenders Loss Payable Endorsement form 438
  • BFU or equivalent) in favor of:
  • Property address and insureds’ names must be designated on the policy as on the ALTA Title Policy.
    • The Lender’s loan number must appear on the policy and any subsequent endorsements.
    • Effective date of new policies, endorsements, and/or assignments shall be as of, or prior to, the date of recording this loan
  • If the security property is a condominium, the master insurance policy must contain a minimum of $1,000,000.00 coverage for “Directors & Officers” liability as well as “walls-in” coverage policy (commonly known as HO-6 policy).