Hazard Insurance vs. Homeowners Insurance: What’s the Difference?

Hazard insurance is not the same as homeowners insurance but it is one type of coverage in a broader home insurance policy. Hazard coverage extends only to your home’s structure, while a home policy provides more comprehensive coverage that includes your personal property and liability.

Hazard insurance is required if you’re financing your home. Fortunately, purchasing a standard home insurance policy will usually meet any coverage requirements enforced by your mortgage lender.

What Is Hazard Insurance?

Hazard insurance, a portion of a broader homeowners policy, insures your home’s structure against several types of hazards. These hazards are commonly called covered perils and may include fire, lightning, theft and vandalism.

If you’re financing your home, your mortgage lender will require you to maintain hazard insurance. While a standard home insurance policy will meet most coverage requirements, lenders may require additional hazard coverage, like a flood or earthquake policy, if you live in a high-risk area.

Even if you own your home outright, we still recommend maintaining coverage. Otherwise, you will have to pay for damages completely out of pocket when your home suffers unexpected damages.

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What Does Hazard Insurance Cover?

A standard homeowners insurance policy protects you from all types of perils unless specifically excluded in your policy. Coverage includes protection from the 16 most common perils.

Fire or lightning Windstorm or hail Explosion Riot or civil commotion Damage by aircraft Damage by vehicles Smoke Sudden/accidental tearing, cracking, burning, or bulging of home systems

Vandalism or malicious mischief Theft Volcanic eruption Falling objects Weight of ice, sleet, snow Freezing of home systems Sudden/accidental power surges Water/steam discharge from home systems and appliances

As you can see, hazards go beyond natural disasters, like fire and windstorms. Theft, vandalism and sudden and accidental losses caused by your home systems, like appliances and pipes are covered, as well.

What Isn’t Covered?

Coverage in a standard homeowners insurance company is expansive but not all-encompassing. Your home policy will contain a list of excluded perils, which usually include:

• Flood
• Earth movement (e.g., earthquakes, sinkholes, landslides)
• War
• Nuclear hazard
• Intentional damages
• Pollution
• Mold
• Infestations

Insurance companies may sell coverage for some of the above exclusions as an add-on to your home insurance policy. Alternatively, you can buy a standalone policy. The National Flood Insurance Program, for example, sells separate flood insurance policies.

How Does Hazard Insurance Work?

Hazard insurance will protect your home’s structure when a covered peril strikes your home. If this happens, you can file a homeowners insurance claim and your provider will help you with repairs or replacements. Deductibles will usually apply.

For example, let’s say a strong gust during a windstorm caused a heavy tree branch to fall on your roof. Your roof is completely damaged and needs to be replaced. You file a homeowners insurance claim and after the adjuster confirms it was a covered loss, they offer a settlement amount to replace your roof.

Your home’s structure is insured for its actual cash value (ACV) — the market value of your home, minus depreciation.

Depreciation will account for age and condition. A 20-year-old roof, for example, will likely be worth less than a newly-installed impact-resistant roof. Therefore, your claim payout may not always be enough to cover repair or replacement costs. You may need to pay some expenses out of pocket.

Remember: Coverage will not apply when an excluded peril strikes your home. If your home’s wall and roof fail during an earthquake and you do not have earthquake insurance, you will not have any financial protection. While unfortunate, you will have to pay for your losses out of pocket.

Be sure to research perils that are not covered in your home policy but may be common in your area. For example, California homeowners should consider earthquake coverage if they live on or near a fault line.

Is Hazard Insurance Part of Homeowners Insurance?

Hazard insurance typically refers to the “dwelling coverage” portion of a homeowners insurance policy. This coverage insures your home’s structure, such as the roof and walls, from certain perils (see list in earlier section), like fire and lightning (see earlier section).

There are five other types of coverage in a standard home policy:

• Other structures: Insures structures besides your primary residence, such as a detached garage, fences or sheds.
• Personal property: Protects your personal belongings, such as electronics, clothes and furniture.
• Liability: Provides coverage when you can be held liable for another person’s property damages and injuries. Covered expenses include medical costs and legal fees.
• Additional living expenses: Pays for your daily living expenses if your home is temporarily uninhabitable — a fire burns down your home, for instance.
• Medical payments: Pays for other people’s medical expenses if they suffer an injury while inside your home, regardless of who was at fault. (Sometimes included, but not always.)

Hazard Insurance vs. Homeowners Insurance: Differences Explained

Hazard insurance is a part of a home insurance policy — these two are not separate and different things. We explain some distinguishing features to explain the relationship between hazard and home insurance.

Hazard Insurance	Homeowners Insurance
One type of coverage within a broader home insurance policy	Policy with several types of coverage
Insures your home’s structure for common perils	Insures your home’s structure and personal property
	Includes liability coverage

Do You Need Hazard Insurance if You Have Homeowners Insurance?

If you have a standard homeowners insurance policy, you already have hazard insurance for the most common perils, like windstorms, hail and vandalism. Standard homeowners insurance policies will also meet the coverage requirements required by your mortgage lender. There is no need to buy hazard insurance separately.

With that said, you may need supplemental hazard insurance for perils not covered by a standard policy.

Flood and earthquake insurance are commonly sold as standalone policies. These insurers provide coverage for these types of natural disasters, otherwise denied by your home insurer. While it is an additional cost, it may be worth the investment if you live in a high-risk area.

How Much Does Hazard Insurance Cost?

The average annual cost of homeowners insurance is $1,213.89 in 2022 and this will include hazard coverage. Several factors will affect the cost of hazard insurance, including:

• Credit score
• Zip code
• Property age
• Roof age and condition
• Updated features (e.g., trampolines, swimming pools)
• Coverage limits
• Deductible
• Claims history
• Application of discounts

How Do You Get Hazard Insurance?

Since hazard insurance is part of a broader home policy, you will follow the same steps for buying homeowners insurance.

Step 1: Determine How Much Coverage You Should Buy

When choosing your coverage limits, your hazard insurance coverage should cover the costs of rebuilding your home. Note that we said your home’s rebuilding costs, not its fair market value. This typically means the cost of building materials and labor, so your idea of “enough” coverage may be lower than you initially think.

Step 2: Shop Around

Collect at least three to five quotes before deciding on a home insurance company. Price is a common deciding factor and you should ask about homeowners insurance discounts you can apply to your quote. Don’t forget about customer service, either. Independent review agencies, like J.D. Power, can help you evaluate a company’s customer service quality.

Before you start shopping around, you should have the following details ready — insurance companies will likely ask for these:

• Square footage
• Number of household members
• Personal information (e.g., credit score, marital status)
• Year the house was built
• Roof type and age
• Garage
• Claims history
• Property safety features (e.g., fire alarms, home security, sprinklers)

Step 3: Consider Endorsements

Homeowners insurance companies sell coverage endorsements, which allow you to increase your coverage based on your specific needs. Some common examples of coverage add-ons include home-based business insurance and identity theft protection:

• Replacement cost value (RCV) coverage: RCV pays for the cost to replace your property without deducting for depreciation. For example, if your roof was damaged by hail, home insurance would pay for a brand new replacement even if your roof was old and deteriorated. ACV is standard coverage and you would receive a smaller payout due to the roof’s age and condition.
• Identity theft protection: Get alerts and details as soon as unusual activity is detected under your identity. Also pays for identity recovery costs.
• Scheduled property coverage: Increasing coverage for personal belongings subject to a sub-limit in a standard policy, like jewelry and antiques. For example, a wedding ring worth $20,000 may normally be subject to a $1,500 sub-limit and scheduling that ring would allow you to file a claim for its total value.
• Home-based business: Extends coverage to home-based business equipment, like your laptop and printer, plus liability. Standard home insurance will not cover commercial-related losses — your work printer causes an electrical fire, for instance.

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Key Takeaways Hazard insurance is different from homeowners insurance but is also one type of coverage in a broader home policy. Hazard coverage insures your home against common perils, like fire, lightning, theft and vandalism. Standard home insurance coverage will only reimburse you for your home’s actual cash value — its market value, minus depreciation.

Find the hazard insurance coverage you need at a price that works for you. SmartfFinancial makes shopping around easy so you can find the best rates available. Just enter your zip code below or call 855.214.2291 to receive your free homeowners insurance quotes.

Sources:

• TurboTax. “Can I Deduct My Homeowner's Insurance?.” Accessed Nov. 25, 2022.