What’s the Difference Between Homeowners and Hazard Insurance?

Whenever you purchase a home, you will need to shop for homeowners insurance. It isn’t legally required for you to have homeowners insurance. However, if you’re taking out a loan, the mortgage lenders would require you to have it. If you’ve never gotten homeowners insurance, one crucial aspect is making sure your homeowner insurance policy has hazard insurance. This keeps you protected financially in the event that your house sustains structural damage. 

What Is Homeowners Insurance?

A homeowner’s insurance policy typically includes coverage for replacing personal items, paying resulting medical bills and other liability coverages. This is your basic coverage, minus everything that hazard insurance covers. It is important to remember that your homeowners insurance policy can be a broad-reaching contract that most often incorporates hazard insurance into the policy. 

There are five key things that your insurance will cover, as outlined by Forbes. 

1. Dwelling: this is the cost to rebuild your home if it was damaged for any reason, except for flooding. 
2. Personal Belongings: this includes the cost to replace or repair personal belongings after an event such as theft, fire, or lightning strikes.
3. Liability Insurance: This will pay for medical expenses and/or property damage that household members can cause to others while on the property. Typical homes have a starting limit of $100,000, but you should consider raising it to $300,000 or more, because this is money that you’d be sued for. 
4. Medical Payments to Others: This is there for minor injuries, like if someone were to require a small amount of stitches. 
5. Additional Living Expenses Coverage: This is the extra “loss of use” such as hotel bills, meals or other costs if you cannot live in your home due to a problem covered by your policy, like a tornado, fire or collapsed roof. 

First time home buyer? No need to stress! Here is our guide to what you should know when looking for home insurance. 

What is Hazard Insurance?

Hazard insurance covers factors that may contribute to the structure of your home, and it is generally required by mortgage lenders before approving a home loan. Hazards, which is also referred to as perils, include many different damages. The common perils include:

1. Theft
2. Vandalism
3. Fire/lightning damage
4. Smoke
5. Windstorm/hail/tornado/hurricane
6. Vehicles
7. Explosion
8. Riots
9. Aircraft
10. Falling objects
11. Volcanic eruption
12. Freezing
13. Sudden or accidental damage to circuit
14. Sudden or accidental tearing, cracking, burning or bulging
15. Weight of ice, snow, sleet
16. Accidental discharge or overflow to water or steam

Hazard insurance typically 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. 

It’s important to note that flooding is not listed as a peril here. Typically, flood insurance is another policy that you add to your home insurance policy. Floods are not ordinarily on policies, but are an added cost.

Where Homeowners Insurance and Hazard Insurance Differ

Though it may sound like something completely separate; hazard insurance is typically one component that is included within a more broad homeowner’s insurance policy. Some geographic regions that are more prone to natural disasters may allow for supplemental hazard insurance options. This is generally used in regards to areas prone to wildfires and flooding. This gives homeowners extra protection, at least some degree of hazard coverage can be found in most homeowners insurance policies.  

Cost For Adding Hazard Insurance

Hazard insurance makes up just a small portion of your homeowner’s insurance policies. You can expect to pay between .25% and .33% of your home’s purchase price for hazard insurance over a 12 month period. Higher end policies can cover open perils, while less expensive policies may be limited to 10 to 16 named perils. Costs also vary depending on the area in which you live. This is because some regions are more likely to experience certain types of extreme weather and natural disasters. 

Types of Coverage

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. Though hazard insurance is in no way a substitute for homeowners insurance, it does cover a range of perils that can cause damage to your home itself.