What is hazard insurance?

Hazard insurance is a policy that protects your home and property from risks like fire, theft, and bad storms. Your lender can require it when you get a mortgage to buy your home.

One of the most important responsibilities of a homeowner is protecting your investment. Besides understanding your principal, interest, and taxes, you must also know what kind of insurance you need.

Hazard insurance covers your home against specific threats, such as theft, fire, and bad storms. Is hazard insurance the same as homeowners insurance? Yes, to some extent. Hazard insurance is the language in a homeowners policy that protects your home from perils.

Let’s take a closer look at hazard insurance vs. homeowners to make sure you’re getting the right coverage to protect you and your family.

Is Hazard Insurance the Same as Homeowners Insurance?

Insurance can be a confusing topic as a homeowner. Mortgage companies commonly require you to buy hazard insurance coverage before closing on your home loan. Hazard insurance is another way to describe homeowners insurance.

The lender wants to protect their investment. Their primary concern is dwelling coverage. Dwelling coverage is insurance for the structure of your home. If a hazard damages or destroys your home, hazard insurance can cover the cost to rebuild or repair the structure.

But what about the contents inside the home? Hazard insurance may not cover your personal items. You may need separate coverage for the insurance company to pay to replace your belongings. 

Understanding hazard and homeowners insurance can help you get the protection you need from an insurance policy.

What Is Homeowners Insurance?

A homeowners insurance policy protects you financially from life’s mishaps. It typically covers fire, lightning, windstorms, theft, vandalism, and other types of damage.

If a fire destroys your home, homeowners insurance can pay to repair or rebuild it. The coverage can also pay to replace furniture, clothing, electronics, and other personal property.

But more than one variety of coverage is available. There are eight different types of home insurance. Policy types range from bare-minimum coverage to more comprehensive policies.

The covered perils, property type, and how you’re reimbursed for a claim vary between policies. You can also get specific home insurance policies for renters insurance (an HO-4 policy), condos (an HO-6 policy), and mobile homes (an HO-7 policy).

What Is Hazard Insurance?

Hazard insurance is another way lenders refer to homeowners insurance. Your mortgage lender might require hazard coverage to protect against specific perils when you buy real estate. It can also identify coverage amount requirements, allowed deductible amounts, and threats your policy must include.

Standard homeowners insurance can cover hazards in two different ways:

  • Named perilsCovers your home and belongings against perils that are specifically named in the policy
  • Open perils: Protects your home and belongings from everything except the perils specifically listed in the policy

Your policy may include both named and open perils. Some insurers have open perils coverage for the dwelling or structure of the house and protect the contents under named perils coverage.

Standard Homeowners Insurance Coverages

Policy limits and covered hazards can vary. Most policies include some level of protection in six distinct areas:

  • Dwelling: Covers the structure of the home and attached structures, such as a garage or attached carport
  • Other structures coverage: Covers damage to structures not attached to the house, such as fences or sheds
  • Personal property coverage: Covers furniture, clothing, electronics, and other contents of the house
  • Loss of use: Covers the cost of additional living expenses while the house is repaired
  • Personal liability: Pays financial losses if someone sues after being injured in the home
  • Medical payments: Covers medical bills for people or pets who are hurt in the house or on the property

Although standard, those aren’t the only situations where homeowners may need to rely on insurance for financial protection. Depending on where you live and your risk tolerance, you may want to ask your insurer about add-on coverage for:

  • Earthquake insurance: Add-on coverage that pays for damage and repairs caused by seismic activity
  • Flood insurance: A separate policy that covers flood and flood-related damage to the house and its contents
  • Water backup of sewer: Add-on coverage that pays for losses caused by sewer or drain backup
  • Personal umbrella liability: Additional coverage that can increase your policy limits for bodily injury, property damage, and personal injury

Earthquake, flood, and water backup insurance can increase the protection against financial loss from damage to your home. A personal umbrella policy goes a step further. It can add extra liability coverage to homeowners and auto insurance for even more protection.

Types of Hazards Covered by Home Insurance

Property damage accounted for over 98 percent of homeowners insurance losses, according to 2018 data from the Insurance Information Institute (III). Because of the high number of property claims, you must understand which hazards are covered before disaster strikes.

Homeowners insurance covers 16 types of hazards or perils:

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or civil commotion
  • Damage caused by aircraft
  • Damage caused by vehicles
  • Smoke
  • Vandalism
  • Theft
  • Volcanic eruption
  • Falling object
  • Weight of ice, snow, or sleet
  • Accidental discharge or overflow of water or steam 
  • Freezing of household systems or appliances
  • Sudden and accidental discharge from an electrical current

That’s an extensive list. You might think hazard insurance is all you need. However, your policy doesn’t always cover damage from a peril or natural disaster. 

Standard homeowners insurance doesn’t cover water damage caused by flooding. Some companies can require you to purchase an endorsement for earthquake protection.

Filing a Claim with Hazard Homeowners Insurance

Filing an insurance claim can prompt your insurance company to pay for damages or losses you incur. But is homeowners insurance the same as hazard insurance when filing a claim? Yes. Because hazard insurance is part of your homeowners policy, the process is the same.

Once your insurance agent agrees to cover the claim, you pay your deductible. A deductible is part of the insurance cost that you pay before the insurance company starts to pay.

The amount of money the insurer pays depends on the type of policy you have. Generally, there are two reimbursement types: replacement cost value and actual cost value.

Actual cash value (ACV) policies are usually the cheaper option. The ACV reimbursement amount considers depreciation. That means your claim payment will only cover the item’s value at the time it was damaged.

Replacement cost policies don’t lower the value of items based on depreciation. They typically pay today’s prices to rebuild or replace your home and belongings. Because they can cover a higher amount than ACV, the insurance premium for a replacement cost policy can be more expensive. 

Frequently Asked Questions – Hazard Insurance vs. Homeowners Insurance

Do I need hazard insurance if I have homeowners insurance?

Hazard insurance is another way to describe homeowners insurance. You don’t need a separate policy. Hazard coverage is included in your home insurance.

Is hazard insurance mandatory on a mortgage?

Homeowners insurance isn’t required by law. Mortgage lenders can mandate that you buy hazard coverage when buying a house. Even if it isn’t required, getting a policy can be a smart move. It can protect you financially from loss if your home or belongings are damaged or destroyed. 

Is hazard insurance enough to protect my home?

Not always. A hazard insurance policy covers common perils like lightning, fire, theft, and windstorms. It does not cover damage caused by flooding. Some policies also exclude earthquake damage. You may need separate insurance coverage to better protect your home.

Which Insurance Coverage Is Best for You?

With so many options to choose from, picking the right insurance coverage can seem overwhelming. But remember: hazard insurance is a part of homeowners insurance. 

A standard policy covers most of the threats that can damage your home. You can choose to buy more coverage based on your location, preferences, and budget. Talk with your insurance agent to discover what policy add-ons or endorsements are available to protect your property.

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