If you’re a soon-to-be homeowner, your lender might mention that you’re required to purchase hazard insurance. You may be wondering, ‘is hazard insurance the same as homeowners insurance?’ In fact, hazard insurance is a part of your standard homeowner’s insurance policy.
Let’s look at the ins and outs of hazard insurance, including what it covers and what it doesn’t, and how much you can expect to pay for it.
Is Hazard Insurance the Same as Homeowners Insurance?
A common misconception is that hazard insurance is the same as homeowners insurance when, in fact, it’s a part of it. That’s because people sometimes refer to homeowners insurance as hazard insurance. You can think of it as a piece of fruit in a fruit and cheese basket — not the entire kit and caboodle.
Hazard insurance typically refers to the protection of the structure of your home and additional structures on the property (like a shed, deck or detached garage), whereas homeowners insurance as a whole also includes coverage for liability, additional living expenses, and personal belongings.
Recommended: Homeowners Insurance Coverage Options to Know
What Is Hazard Insurance?
Hazard insurance is part of homeowners insurance, and it typically covers the structure or dwelling, but not liability, personal belongings, or additional living expenses. Because it’s a part of a standard homeowners insurance policy, it cannot be purchased as a standalone policy. Rather, it’s folded into your homeowners insurance.
Hazard is oftentimes confused with catastrophic insurance, which is a standalone policy that covers against perils that aren’t included in a standard homeowners insurance policy, such as floods, earthquakes, and terrorist attacks.
What Does Hazard Insurance Cover?
Should there be damage to the actual structure of your home, the hazard insurance portion of your homeowners’ insurance policy will offer a payout. This usually includes damage or destruction to the actual building of your home from natural events, such as extreme weather or a natural disaster.
However, what specifically hazard insurance covers will depend on whether it’s a named perils or an open perils policy. Read on for more details on what those entail.
Named perils essentially means events, incidences, or risks that are “named” or “listed” under your plan as covered. In other words, if it’s not listed, then it’s not covered.
A named perils policy typically protects against 16 specific types of perils, including:
• Windstorms or hail
• Fire or lightning
• Riots or civil disruption
• Falling objects
• Vandalism or malicious mischief
• Damage caused by vehicles
• Damage caused by aircraft
• Damage from ice, snow or sleet
• Volcanic eruption
• Accidental discharge or overflow of water or steam from HVAC, a plumbing issue, a household appliance or a sprinkler system
• Accidental cracking, tearing apart, burning or bulging of HVAC or a fire-protective system
• Freezing of HVAC or a household appliance
• Accidental damage from electrical current that is artificially generated
A homeowners insurance policy that is a named perils insurance policy is usually less expensive than an open perils policy.
While a named perils policy will only cover what’s listed in your policy, an open perils policy will provide coverage unless something is specifically excluded and noted as such in your policy.
Typical exclusions under an open perils policy include:
• Nuclear hazard
• Water damage from a sewer backup
• Damage from pets
• Power failure
• Mold or fungus
• Damage due to an infestation of animals or insects
• Negligence and general wear and tear
• Smog, rust or corrosion
An open perils policy tends to be for newer homes or homes in low-risk areas. Additionally, because an open perils homeowners insurance policy tends to be more comprehensive, they typically cost more compared to a named perils policy.
What Isn’t Covered by Hazard Insurance?
Now that we’ve looked at what hazard insurance may cover, here’s what typically isn’t covered.
Flood coverage isn’t part of a standard homeowners insurance policy, so you’ll need to take out a separate policy if you want it. In fact, if you live in an area that’s a designated high-risk flood zone, you may be required to take out flood insurance.
The cost of the policy generally hinges on how much of a risk your home is, which factors in your location, and the age of your home.
Earthquake coverage is another item that hazard insurance doesn’t offer, so if you live in an area that’s subject to earthquakes, you may want to get an earthquake insurance policy. This can either be tacked on to an existing policy as a rider or purchased separately.
When you purchase earthquake coverage, your home is usually protected against cracking and shaking that can damage or destroy buildings and personal possessions. But if there’s water or fire damage because of an earthquake, then that generally would be taken care of by a standard homeowners insurance policy.
How Much Does Hazard Insurance Cost?
As hazard insurance is part of a standard homeowners insurance policy, you won’t need to pay anything extra. According to the most recent data from the Insurance Information Institute (III), the average cost of a homeowners policy in the U.S. is $1,249.
Keep in mind that the cost can vary depending on a host of factors: the location of the home, the cost to rebuild, the size and structure of your home, your age, your credit score, your deductible and the type of policy and amount of coverage you desire.
Do You Need Hazard Insurance?
In short, yes. As you will need homeowners insurance if you are taking out a mortgage on your home, and hazard insurance is folded into homeowners insurance, then you’ll need hazard insurance.
When shopping around for hazard insurance, think about what is required by your mortgage lender, and what coverage amount would be suitable for your home and situation. Play around with different deductibles and coverage amounts to see how they would impact your premium, and don’t forget that discounts can also lower the cost of your insurance.
Hazard insurance and homeowners insurance aren’t the same thing. Rather, hazard insurance refers specifically to coverage for the structure of your home and is an element of homeowners insurance. What your hazard insurance policy will cover depends on whether you have a named or open perils policy, though it generally won’t extend to damage from earthquakes or floods.
If you’re taking out a mortgage on your home, you’re generally required to get homeowners insurance — and, by extension, hazard insurance. SoFi has teamed up with Lemonade to make it easy to get homeowners insurance. Simply chat with Lemonade’s A.I. bot to get an insurance plan crafted for you, and then Lemonade will send a quote to your lender.
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