• Flood insurance is one of the most common forms of hazard insurance.reservoir overflow image by Paula Gent from Fotolia.com
  
  Hazard insurance refers to a special type of homeowners insurance that covers events that are left out of a standard, comprehensive homeowners insurance plan, such as floods and earthquakes. Some insurance companies offer hazard insurance as a policy rider, and the federal government administers flood insurance through its National Flood Insurance Program. Not all homeowners choose to purchase hazard insurance, any many of those who never need it. However, hazard insurance can be a good investment for some buyers and may even be a requirement with some mortgages.
  
  

Cost

• The main disadvantage of hazard insurance is its cost. Homeowners who already pay for a comprehensive homeowners insurance policy may not be eager to add another annual expense that hazard insurance represents. Hazard insurance rates vary based on a homeowner's degree of risk. Those most in need, such as residents of high-risk flood plains and earthquake-prone cities, will face very high hazard insurance premiums. The cost of hazard insurance may place strain on a household budget or force a family to find ways to save money elsewhere.
  
  

Deductibles

• Hazard insurance policies typically have very high deductibles. Instead of set dollar amounts, as with auto and homeowners insurance, hazard insurance often requires the policy holder to pay a percentage of a home's value, which can easily extend into the tens of thousands of dollars. This may mean that a homeowner is unlikely to file a claim even if a devastating event does occur.
  
  

Redundancy

• In some cases, such as widespread disasters, the federal government may provide grants to help homeowners rebuild. These grants, administered through the Federal Emergency Management Agency may not be available to homeowners whose insurance pays for rebuilding. Even if a homeowner does qualify for FEMA grants, this in itself may be enough of a reason to forgo purchasing hazard insurance to avoid redundant coverage.
  
  

Protection

• Because of the omissions in most homeowners insurance policies, hazard insurance is often the only form of financial protection available to homeowners. A flood or earthquake may completely destroy a home, leaving its residents without a place to live or funds to rebuild. Hazard insurance covers replacement costs, which means it will pay for the construction of a new home once the policy holder pays the deductible.
  
  

Optional

• With the exception of mortgage holders who live in a high-risk area, most hazard insurance is entirely optional. Even homeowners in a high-risk area can elect to let coverage lapse once the mortgage is paid for. As an optional form of insurance, hazard insurance provides homeowners with a choice of coverage that extends a standard policy, which some homeowners may decide is enough. Others may choose to buy hazard insurance if and when the value of a home reaches a certain level, and it becomes an investment worth protecting.