What's the difference between mortgage insurance and hazard or homeowner's insurance?

Mortgage insurance and hazard insurance provides different kinds of protection.

Mortgage insurance protects the loan that the lender provides you when you bought the house for less than 20% down payment. In the event that you default on paying for the loan, the insurance will pay for the amount that you still have to pay the lender. But, of course, this does not mean that you can get away with not paying for your mortgage. Your house will still be foreclosed and you will have a bad mark on your credit rating.

Mortgage insurance can be paid monthly or it can be settled with a one-time payment upon the closing of the sale. If this is paid monthly, you may cancel the coverage if you already have 20% equity on the house.

Homeowner's insurance (also called hazard insurance) protects your home against possible hazards that may cause physical damage to your home or may result in the loss of the things that are inside your home. In short, it provides insurance protection for your house, in case something happens to it. The hazards covered will include natural disasters such as flood, earthquake, hurricanes or storms, as well as fire, acts of vandalism and damage caused by riots and acts of terrorism.

The homeowners insurance will pay for the loss or damage on the property. It will also pay for medical payments (in case you or someone else is injured when the property was damaged. It will also cover for personal liability (when someone sues you because he got hurt while he was in your home) and personal property (protection against theft of covered items that are inside your home).

There are also some hazard insurance products that offer protection for a specific hazard. Also, one subtle distinction between a pure hazard insurance and a homeowners insurance (especially one that provides comprehensive cover) is that hazard insurance is more towards protecting against physical damage to property.

If you buy a home, we strongly recommend that you get coverage for both homeowners insurance and mortgage insurance.

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