What type of insurance is typically included in escrow payments?

What type of insurance is typically included in escrow payments?

• A. Liability Insurance
• B. Workers' Compensation Insurance
• C. Hazard Insurance
• D. Title Insurance

Answer: (C)

Hazard insurance is commonly included in escrow payments because it protects the lender and homeowner from financial loss due to damage to the property from specific risks, such as fire, storms, and vandalism. When a mortgage is obtained, lenders usually require borrowers to carry this type of insurance to ensure that their investment is safeguarded. The escrow account is then used to collect and manage these payments, making it easier for the homeowner to cover insurance premiums along with property taxes and other necessary payments. This arrangement helps avoid lapses in coverage, which could jeopardize the lender's security interest in the property. In contrast, liability insurance, such as homeowners liability insurance, protects against claims resulting from injuries or damage to other people or property. Workers' compensation insurance covers employee-related injuries and does not pertain to property financial activities. Title insurance protects against defects in title and is typically a one-time fee paid at closing rather than ongoing payments accounted for in escrow.

Hazard insurance is commonly included in escrow payments because it protects the lender and homeowner from financial loss due to damage to the property from specific risks, such as fire, storms, and vandalism. When a mortgage is obtained, lenders usually require borrowers to carry this type of insurance to ensure that their investment is safeguarded. The escrow account is then used to collect and manage these payments, making it easier for the homeowner to cover insurance premiums along with property taxes and other necessary payments. This arrangement helps avoid lapses in coverage, which could jeopardize the lender's security interest in the property.

In contrast, liability insurance, such as homeowners liability insurance, protects against claims resulting from injuries or damage to other people or property. Workers' compensation insurance covers employee-related injuries and does not pertain to property financial activities. Title insurance protects against defects in title and is typically a one-time fee paid at closing rather than ongoing payments accounted for in escrow.