Is Hazard Insurance the Same as Homeowners Insurance?
Yes, hazard insurance is the same as homeowners insurance and, more precisely, it is the dwelling portion of your policy.
When you purchase standard homeowners insurance, your policy will include protection against covered perils that can damage or destroy your home. Rest assured, if your house is destroyed by fire, your homeowners insurance policy will help pay for the rebuilding of your home.
However, a homeowners insurance policy only insures your property against specified events in your policy. For example, you may pay more but standard home insurance policies cover wildfires, but they do not cover earthquakes and floods.
While there are no state or federal law requirements to purchase homeowners insurance coverage, your mortgage lender will no doubt require hazard insurance because it offers financial protection to the home-loan company's asset, not just yours.
A Note on "Hazard" vs. "Peril"
Technically speaking, a homeowners insurance policy covers perils, not hazards. When we speak of "hazard coverage" or "hazard insurance policies," we mean dwelling coverage which every standard homeowners insurance policy includes.
In this article, we will use the terms "hazard" and "dwelling coverage" interchangeably.
What Is Hazard Insurance?
Hazard insurance, also called dwelling coverage, only covers the structure of your home and is the largest component of a four-part homeowners insurance policy. Hazard insurance does not cover other losses, like injuries on your property or damaged/stolen belongings and theft.
Home lenders use the term "hazard insurance" because coverage for the structure of the home is often the only part of your homeowners insurance that is required if you take out a mortgage.
With that said, most homeowners insurance companies do not sell hazard insurance alone or a barebones HO-1 policy or even an HO-2 policy these days. Most homeowners across the U.S. have the standard HO-3 home insurance policy.
Hazard Insurance vs. Homeowners Insurance
Standard homeowners insurance includes four components that cover four different areas of risk:
- Dwelling insurance, also called "hazard insurance," which covers the structure of your home, including the roof and foundation.
- Personal property insurance, which covers the loss of your personal belongings, with limits of 20 to 50% of dwelling coverage.
- Loss-of-use insurance, which covers your additional living expenses if your home becomes uninhabitable and covers up to 10% of your dwelling coverage.
- Personal liability insurance, which covers the bodily injury or property damage suffered by a houseguest.
What Does Hazard Insurance Cover?
Hazard insurance, or dwelling coverage, protects you and your family when the structure of your home is damaged or destroyed. While dwelling coverage may vary from one geographical area to another, it typically covers the following perils:
The National Fire Protection Association reports an average of 355,400 residential fires in the U.S. each year. Your homeowners insurance policies will cover fire damage, including wildfires, even when the underlying cause of that fire is not covered.
For example, standard homeowners insurance policies does not cover the damage to the foundation or structure of your home that results from an earthquake, but it will usually pay for fire damage that results from an earthquake.
Hazard insurance typically covers hail damage to your roof and other parts of your house. If you live in an area that is especially prone to hail storms, however, your insurance rate will most likely reflect the increased risk of this peril. You may also have a higher deductible.
Of the top-five states with the most hail events, Texas tops the list, followed by Illinois, Missouri, Minnesota and Oklahoma.
Many insurance providers will not reimburse the policyholder if the hail damage is only cosmetic and doesn't compromise the actual structure of the house. Pro tip: Before you file a claim with your insurance company, hire an independent professional to assess the damage.
Your home insurance will not cover any hail damage to your car. For example, if a hail storm wreaks havoc on your vehicle, that damage can only be reimbursed by comprehensive auto insurance. Standard auto insurance coverage does not include comprehensive coverage, so you'll have to add it to your liability coverage.
A lightning strike can start a fire inside or outside your home. Not only that, but this electromagnetic ball of energy can cause a power surge, damaging your house's electrical wiring and the sensitive semiconductors in your electronics, free-standing or built-in appliances, and household systems.
While hazard insurance will cover any structural damage to your home caused by lightning, your personal property coverage will reimburse you for the loss of the contents of your home.
Hazard, or dwelling, coverage insures against explosions that stem from a gas leak or your boiler, water heater, propane tank or propane grill. In fact, hazard insurance will cover damage to the structure of your home that results from the next-door factory blowing up. However, hazard insurance will not cover explosions caused by intentional acts, illegal acts, war and nuclear perils.
Hazard coverage typically only insures against healthy trees that fall and damage your home's structure. If the tree was dying at the time of the event, your insurance company will probably claim that you should have recognized and removed this obvious hazard sooner.
If your neighbor's tree falls and damages your house's structure, your insurance company will pay you, but it will probably assume its right of subrogation to pursue damages from your neighbor's insurance company.
If someone burns down your house or tampers with your plumbing, hazard insurance will cover these types of vandalism. If they slash your tires, comprehensive auto insurance will cover it. If they cut down your trees, bushes or flowers or salt or otherwise destroy your lawn, landscape insurance will cover it. If a mob spray-paints graffiti on your house and throws eggs at it, breaks outdoor lights or windows and glues the locks, you'll have to pay for those fixes out of your own pocket. Hazard insurance only protects the structure of your house.
Vehicles and Airplanes
If airplanes, other falling objects or vehicles damage your house, hazard insurance will cover the loss.
What Doesn't Hazard Insurance Cover?
Hazard insurance covers some things, but not others that are specifically excluded, including the following:
Flood insurance is sold as a separate, stand-alone insurance product. Some carriers offer flood coverage and other carriers don't, so you may have to do some research and shop around. If you cannot find flood protection, you can apply for coverage from the National Flood Insurance Program.
Earthquake insurance is sold as a separate, stand-alone insurance product. The average cost of this insurance product varies depending on the relative risk of a quake in your area, and deductibles are higher than standard home insurance deductibles, according to the Insurance Information Institute.
While Alaska has the most earthquakes, the earthquakes in California affect far more structures. California homeowners who cannot find a carrier can purchase earthquake coverage from the California Earthquake Authority, which provides coverage for the home's structure as well as building-code upgrades and emergency repairs.
Sewer backups are not covered under a typical homeowners insurance policy, nor are they covered by flood protection. This type of coverage must be purchased either as a separate policy or as an endorsement to a homeowners policy, usually at a nominal cost.
Under hazard or dwelling coverage, a standard homeowners insurance policy usually covers other structures, like a detached garage, pool house, shed, gazebo, fence or any other structures on your property. However, hazard insurance will not cover a guest house, vacation home, rental property or any other second home. You must buy separate homeowners insurance policies for each property.
Generally speaking, homeowners insurance policies cover sudden and accidental damage, not normal wear and tear and problems that could have been avoided. In short, the homeowner has a responsibility to eliminate hazards in a timely manner and stop damage before it becomes a covered peril. For example, if your house is flooded by a burst pipe, you will not receive compensation if you could have arrested a leak that's been slowly dripping for months.
How Much Hazard Insurance Do I Need?
When you're purchasing hazard insurance coverage, you need to purchase enough hazard insurance, or dwelling insurance, to cover the cost of rebuilding your home. That means your hazard insurance should have a policy limit that is high enough to pay for the cost of rebuilding the structure. Also, consider that the other coverages (personal belongings, other structures) are a percentage of your dwelling coverage.
How Much Is Hazard Insurance?
Most Americans can expect to pay about $1,015 a year, on average, for homeowners insurance. However, homeowners insurance coverage prices vary from insurance company to insurance company and from house to house.
Actual Cash Value vs Replacement Cost Coverage
If you insure your home for it's actual cash value, your policy limit will be pegged to the market value of your entire home's structure just before it was destroyed. Of course, due to the increased cost of labor and materials, the dollar amount of your home's market value may not be enough to rebuild your home as it was.
You should buy enough hazard insurance to cover rebuilding your house.
Replacement cost coverage guarantees the rebuilding of your home as you remember it, despite your home's depreciation or the market's inflation. Most insurers suggest replacement cost but it costs more.
The difference in these two types of coverage also applies to personal property coverage.
How to File a Claim
First, see whether or not the peril that caused the damage or loss is covered in your homeowners insurance policy. There are certain steps you must take, like filing a police report if the losses involve criminal activity. You'll also need to contact your insurance agent and start the claims process in order for home insurance to help pay for repairs and replacements. For this, you may need documentation of the losses, so a home inventory is useful, as are receipts for any home improvements. Keep in mind what your coverage limits are because you may have to pay for losses out-of-pocket if they are too low.
Buy Adequate Hazard Insurance, Protect Your Home
When you're purchasing hazard insurance coverage, you need to purchase enough hazard insurance, or dwelling insurance, to cover the cost of rebuilding your home. If you’re buying a full homeowners insurance policy, consider that the other coverages (personal belongings, other structures) are a percentage of your dwelling coverage. Make sure your limits are high enough.
It is not recommended that you allow a lender to buy a hazard only policy for you. Buying a homeowners insurance policy is one of the most important financial decisions you can make, and hazard insurance is an important component of a home insurance policy.
SmartFinancial may save you up to 40% in home insurance costs, so begin a free homeowners insurance quote by entering your zip code or calling 855-214-2291.