Homeowners Insurance vs Hazard Insurance
However, when tragedy strikes, having a good homeowners insurance policy helps you rebuild and move forward in a timely manner. One crucial aspect of any homeowners insurance policy is hazard insurance, which keeps you protected financially in the event that your house sustains structural damage.
What’s the difference between homeowners and hazard insurance?
There isn’t one. Your mortgage lender might mandate that you buy “hazard insurance” to protect their investment in your home while you have a loan with them, but hazard insurance isn’t a specific insurance product. Instead, you get hazard insurance by buying home insurance.
What is hazard insurance, then? Though it may sound like something completely separate, hazard insurance is typically one component included within a homeowners insurance policy. Some geographic regions more prone to natural disasters may allow for supplemental hazard insurance options for extra protection, but at least some degree of hazard coverage can be found in most homeowners insurance policies.
What is homeowners insurance?
Your homeowners insurance policy includes hazard insurance, plus coverage for replacing personal items, extra expenses you incur if you’re displaced by a covered peril and some of your liabilities. In short, your homeowners insurance policy is broad-reaching coverage that most often incorporates hazard insurance into the policy.
What is hazard insurance?
Hazard insurance covers things that may damage the structure of your home, and it’s generally required by mortgage lenders before approving your home loan. Also referred to as perils, hazards may include damages incurred by fire, wind, water, falling objects, vandalism and more.
Cost of hazard insurance
Hazard insurance makes up just one portion of your homeowners insurance policy. You can expect to pay between .25% and .33% of your home’s purchase price for hazard insurance over a twelve-month period. Higher-end policies cover open perils (a broad range of perils except those explicitly excluded by the policy), while less expensive policies may be limited to 10 to 16 named perils.
Hazard insurance applies to instances where the structure of your home is damaged, rather than covering personal items inside the home. Hazard insurance helps cover the costs of repairing or rebuilding the structure of your home. To protect what you keep inside it, you’ll need to turn to the personal property coverage portion of your home insurance.
Hazard insurance costs also vary depending on the area in which you live, since some regions are more likely to experience certain types of extreme weather and natural disasters.
Types of coverage
When you look at your homeowners insurance policy, you’ll see coverage broken down into lettered sections. Let’s look at each of the most common coverages and where hazard insurance will apply.
- Coverage A: Also called dwelling coverage, this is the portion of your policy that covers the actual structure of your home against perils. In other words, it’s your hazard insurance.
- Coverage B: This portion of your policy covers other structures on your property, like a detached garage or shed.
- Coverage C: Also called personal property coverage, this part of your home policy insures your stuff against the hazards and other perils, like theft.
- Coverage D: Also called additional living expenses (ALE) or loss of use coverage, your Coverage D helps with extra costs if you get displaced by a covered peril (e.g., if you have to stay in a hotel after a house fire).
- Coverage E: This portion of your policy offers you liability coverage if someone sues you for negligence.
- Coverage F: This covers certain medical bills. For example, it can step in if a guest gets injured at your house.
Clearly, a standard homeowners insurance policy offers protection that extends well beyond hazard insurance. Hazard insurance is just one segment of your homeowners insurance policy, but it is nonetheless vital for protecting your home from the costs of structural damage.
As a quick but important aside, all of the coverages we explored above are subject to the limits listed in your policy. Review it to make sure you have enough protection in each area.
What are perils?
Perils are the things your homeowners insurance — and the hazard insurance it includes — protects you against. Homeowners have three choices for policy types:
- HO-1 basic form insurance: This policy protects against ten named perils like fire, theft and hail. It’s the least robust form of homeowners insurance.
- HO-2 broad form insurance: These policies work like HO-1 policies, except they protect against 16 named perils.
- HO-3 special form insurance: The furthest-reaching of your homeowners insurance options, these policies cover open perils, or all perils, unless they’re specifically listed as an exclusion in your policy.
Let’s look at the specific perils from which your homeowners insurance and hazard insurance protect you.
Named vs. Open perils
Between the homeowners insurance and the incorporated hazard insurance, your home is protected from a range of perils. Named perils are those hazards specifically named in your policy, while open perils cover all hazards unless explicitly excluded in your policy. Most homeowners insurance policies give you the option of protection for 10 perils, 16 perils or open perils.
Sixteen of the commonly covered named perils that appear in the hazard subsection of your homeowners insurance policy include:
- Fire or lightning
- Windstorms and hail
- Ice, snow, and sleet
- Falling objects
- Riots or civil unrest
- Damage from aircraft
- Damage from vehicles
- Volcanic eruption
- Accidental water/steam overflow
- Sudden and accidental damage to an appliance
- Sudden and accidental damage from artificially generated electrical current
On the contrary, if your hazard insurance covers open perils, this means that your home is protected from all perils unless a specific peril is excluded in your homeowners insurance policy.
Compare the different types of homeowners insurance policies below and the perils they each cover against.
|Type of Policy||Sub-Policies||Perils Covered||Structural Damage Covered||Personal Property Damage Covered||Protected Against Lawsuits||Costs of Relocation Covered|
|HO-1 Basic||Hazard||10 named perils||✓||X||X||X|
|HO-2 Broad Form||Hazard + Personal Property||16 named perils||✓||✓||X||X|
|HO-3 Special Form||Hazard + Personal Property +|
Liability + Additional Living Expenses
Making a homeowners insurance claim
In the face of a natural disaster or other structurally-destructive incidents, hazard insurance provides peace of mind you need to know that your home is financially-protected. After the unthinkable occurs, there are a number of steps you should take to ensure that your claim is handled in an appropriate and speedy manner:
- Document the damage through photos and written descriptions
- Take care of any temporary emergency repairs
- Contact your insurer
- Review your policy
- Carefully vet potential contractors
After a covered hazard, you might assume your insurer will cut you a check for the full amount of the insured damages to your home. However, there’s a quick calculation to do first. They’ll subtract your deductible from the amount they give you.
In most cases, this deductible is a flat dollar amount you’ve agreed to pay toward covered losses (for example, $1,500). Review your policy to find your deductible.
That said, some perils come with special deductibles, especially if you live in an area prone to a specific natural disaster. If you live in a region that commonly experiences hurricanes, for example, you might have a specific wind and hail deductible. This deductible is a percentage of your policy limit and is usually higher than the standard home insurance deductible.
Who should consider hazard insurance?
If you own a home, you should seriously think about getting a homeowners insurance policy and its included hazard insurance coverage. Your home is probably one of your biggest investments. Without this coverage in place, one unforeseen hazard can destroy your home and leave you footing the bill on expensive repair or rebuilding costs.
In fact, if you have a mortgage, your lender will probably require you to get hazard insurance. This is their way of protecting their stake in your house.
That said, if you own multiple homes outright, maybe you don’t need to insure these investments. Again, though, if you choose to forego coverage, you’re putting yourself in a position to lose potentially hundreds of thousands of dollars overnight. Remember, home fires can happen anywhere at any time.
As you’re looking for the right level of home and hazard insurance to safeguard your house, make sure you factor in your location. You might want supplemental hazard insurance to protect yourself. That could mean buying additional coverage as part of your home insurance policy or getting a separate policy to protect against disasters like earthquakes or floods, which home insurance policies traditionally don’t cover.
Homeowners insurance and hazard insurance simplified
If your mortgage lender tells you that you need to get hazard insurance, don’t worry. This isn’t some new, complicated insurance product. Instead, hazard insurance is a portion of your homeowners insurance policy. It:
- Protects the structure of your house against damage
- Covers either the perils listed in your policy or all perils save those specifically listed as exclusions, depending on your policy type
- Works alongside other coverages in your home insurance policy — like personal property, ALE and liability coverage — to financially protect you
With a home insurance policy and the hazard insurance it includes, you can rest easy.