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Insight:

Hazard insurance is a part of a standard home insurance policy that covers the structure. 

Most mortgage lenders require hazard insurance, but how is that different from a home insurance policy? 

Hazard insurance is a portion of home insurance policy. So, when your mortgage lender demands hazard insurance, it wants to make sure you protect your home with dwelling insurance coverage or hazard insurance. 

The Insurance Information Institute estimates that 91% of homeowner insurance claims are related to property damage, so hazard insurance is key to protecting you and your home. 

Here’s what you need to know about the differences between hazard insurance and home insurance. 

Key Takeaways

  • Hazard insurance and homeowners insurance aren’t the same. Hazard insurance covers the dwelling.
  • Home insurance is the larger policy that covers other things like personal property and other structures, and provides liability coverage, in addition to dwelling coverage.
  • Hazard insurance and a home insurance policy can have named perils or be an open peril policy. The type of policy influences when the home insurance company reimburses you if you file a claim.
  • Floods aren’t covered under typical homeowners insurance policies. A special policy is needed to cover floods.

Is hazard insurance the same as home insurance?

Hazard insurance and home insurance aren’t the same thing. 

Instead, Hazard insurance protects the home and is the same as dwelling insurance that’s part of a home insurance policy. Hazard insurance only covers damage to the actual structure. 

Hazard insurance can’t be purchased separately from a homeowners policy, says Mark Friedlander, director of corporate communications for the Insurance Information Institute.

“Hazard insurance generally refers to damage to the structure of your home by a covered peril,” Friedlander says. 

Home insurance includes hazard insurance (dwelling coverage), personal property coverage, other structures coverage, and additional living expenses

“Other coverages included in a typical homeowners policy – such as loss of use/additional living expenses and no-fault medical payments to others – are not considered a part of hazard insurance, but your homeowners policy will still provide you with these valuable protections,” he says.

Hazard insurance handles covered perils, including fire, vandalism, explosions, theft or weather-related damage to the house. Hazard coverage doesn’t cover injuries that occurred at that property, but the large home policy should cover that. 

If a tree falls on your roof and you need to live somewhere else temporarily while the repairs happen, the hazard insurance covers the damage to the property, and your larger homeowners insurance policy covers your living costs while you’re living away from your home. 

Similar to other parts of home insurance, hazard insurance is subject to a deductible. The higher the deductible, the lower the premium you pay. 

Hazard insurance cost varies by the home. Hazard insurance is dwelling coverage, so the size of the structure and cost to replace the structure influences the cost of hazard insurance. 

What does hazard insurance cover?

Typical hazards that are covered perils in a standard homeowners policy include:

  • Fire and smoke
  • Lightning
  • Hail
  • Windstorms
  • Explosions
  • Theft
  • Vandalism
  • Falling objects
  • Damage caused by the weight of snow, sleet or ice
  • Freezing of household items like your HVAC systems (AC/furnace)
  • Water damage caused by a household appliance or burst pipe
  • Power surges
  • Riots and civil commotion
  • Damage from vehicles
  • Damage from aircraft
  • Volcanic eruption

A summary of your coverages, limits, and deductibles is listed on the declaration page of your homeowners policy (typically the first page of the policy), Friedlander says.

What hazard insurance doesn’t cover

Hazard insurance doesn’t cover every type of damage. Here’s what the hazard insurance portion of a home insurance policy doesn’t typically cover:

  • Floods
  • Earthquakes
  • Personal property inside the structure
  • Liability insurance

If you want flood damage protection, you must buy a separate flood insurance policy. The same goes for earthquake insurance. 

Earthquake insurance should be considered by homeowners who live in areas prone to earthquakes, such as the West Coast and several Midwestern states. Earthquake insurance may be available through your home insurer as an endorsement to your standard home policy or purchased separately through specialty insurers, such as the California Earthquake Authority. Your insurance agent can help you shop for coverage,” Freidlander says. 

However, personal property is part of a standard home policy. So, hazard insurance doesn’t cover stolen or damaged personal belongings, but it should be handled by the personal property portion of a home insurance policy. The same goes for liability coverage. 

Named peril policy vs. open peril policy

The difference between a named peril policy and an open peril policy can mean the difference between whether your home policy covers damage. 

Named peril policies include coverage for the standard items, such as hail, fire, and vandalism. So, these policies are more limited than an open peril policy. 

Open peril policies cover events that aren’t named, as long as they aren’t listed as an exclusion. For example, if you lose a diamond ring in the house and there is no sign of damages, the named peril policy probably wouldn’t cover its cost, but the open peril policy likely would cover it. The caveat would be if loss of valuables was listed as an exclusion on the open peril policy.

“A named perils policy provides coverage only for those perils listed, or specifically ‘named,’ in the policy. An open perils policy provides protection to you for any reason not specifically excluded in the policy. Standard homeowners policies typically list the perils that are covered – thus, they are ‘named perils,’” says Freidlander.

Named peril policy

Here’s what is usually covered in a named peril policy:

  • Fire
  • Theft
  • Vandalism
  • Explosion
  • Falling debris

Open peril policy

Open peril policies usually include:

  • Fire
  • Theft
  • Vandalism
  • Explosion
  • Falling debris
  • Anything else that isn’t named as long as it does not have to do with normal wear and tear or any exclusions

Frequently Asked Questions

What’s the difference between actual cash value and replacement cash value?

Both terms refer to how your insurance policy reimburses for covered losses. Actual cash value takes into account depreciation. Replacement cash value does not.

So, you get a larger payout when you file a claim for items if you have replacement value coverage. However, that also comes at a higher cost than actual cash value. 

If your policy only has an actual cash value, natural wear and tear will be considered when deciding the depreciation amounts. Insurance Information Institute says this could mean your rebuilt property would not be built to the same standards it was before the covered loss happened.

Is flood insurance part of hazard insurance?

Flood insurance isn’t typically covered under home insurance or hazard insurance. 

A separate flood insurance policy can be purchased to cover damage done by floods to a building or property, and sometimes both. Homes in a flood zone may be required to have flood insurance, especially if you have a mortgage. 

“There are two important coverages not included in standard homeowners policies that should be strongly considered by those seeking coverage — flood insurance and earthquake insurance. These require separate policies or endorsements depending upon your insurer,” says Freidlander.

Freidlander adds that lack of flood insurance is one of the biggest insurance pages in the country. Ninety percent of natural disasters involve flooding, so all homeowners should consider adding flood insurance, he says. 

“As we saw during the 2021 hurricane season, especially during Hurricane Ida, severe flooding can occur well inland, not just in coastal areas, after a tropical cyclone makes landfall. Flood insurance is typically sold by home insurers but underwritten by the federally-backed National Flood Insurance Program. It is also available through dozens of private flood insurers. Your insurance agent can help you shop for coverage,” Freidlander says. 

What are the types of homeowners insurance policies?

There are eight different types of homeowners insurance policies: HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, HO-7, and HO-8.

HO-1 offers limited coverage and isn’t common, while HO-2 offers slightly more protection. HO-3 is the standard home insurance policy that builds on HO-2 coverage. 

HO-5 is the second most used type of homeowners insurance. It’s the most comprehensive coverage for homeowners. 

Meanwhile, HO-8 is for older homes that fail to meet insurance company standards. For instance, the insurer may not want to offer a standard HO-3 policy because of issues with the plumbing, roof, or electrical system. HO-8 policies are rare. 

Beyond those policies, home insurance companies offer HO-4 for renters insurance, HO-6 for condo insurance, and HO-7 for mobile homes and manufactured homes. 

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