If you’re looking to purchase a home, you may hear your mortgage company use the terms “hazard insurance” and “home insurance.” Although these terms are sometimes used interchangeably, they are not exactly the same thing. Hazard insurance covers the physical structure of your home against damage such as fire, wind, lightning, and hail. Home insurance, on the other hand, includes coverage for the physical structure of your home, personal property, liability insurance, and other types of coverage. Bankrate’s insurance editorial team takes a closer look at hazard insurance to understand how it fits into your homeowner’s insurance policy.
Is homeowners insurance the same as hazard insurance?
No, hazard insurance is not the same thing as homeowners insurance, but it is part of your homeowners insurance policy. Hazard insurance is part of the average homeowners insurance policy and is not something you need to buy separately. Although it acts as homeowners insurance, it is not an interchangeable term with homeowners insurance. Hazard insurance and home coverage are the same thing. Home insurance is the part of your insurance policy that covers your actual home from roof to foundation, but it does not cover the contents of your home or other structures. The average homeowner’s insurance policy is sometimes referred to as hazard insurance because it includes coverage for a list of perils or causes of loss that can damage or destroy your home.
What is residential hazard insurance?
Home insurance includes hazard insurance. The term “hazard insurance” refers to the part of your home insurance policy that covers the physical structure of your home.
Another term you may hear from your mortgage lender is “mortgage insurance.” This is completely different from hazard insurance or home insurance. Private mortgage insurance (PMI) is an additional fee paid by borrowers with a down payment of less than 20% or who have less than 20% equity when refinancing their mortgage. PMI works to protect the mortgage lender if you default on your loan, and home insurance protects the mortgage lender’s investment in your home and your growing home equity. Typically, PMI automatically cancels when your loan balance reaches 78% of your loan-to-value ratio.
What Homeowners Insurance Covers
Let’s zoom out and look at standard homeowners insurance coverage. Homeowners insurance is made up of a series of coverage types that insure different aspects of your home. In addition to coverage for your home, homeowners insurance also covers detached structures such as detached garages, personal property, and liability if someone is injured on your property. Common coverage types included in a standard homeowners insurance policy include:
- housing compensation: This part of homeowners insurance, often called hazard insurance, provides financial protection for repairs or replacements to the physical structure of your home, such as the foundation, roof, walls, and windows.
- Personal property compensation: This aspect of the insurance policy protects against the loss, damage, or theft of personal items in your home or even in your car, as long as the cause of the loss (peril) is covered by the insurance policy.
- Other structures also covered: If you have separate structures on your property, such as sheds, greenhouses or fences, the other structures part of your policy will ensure that they are protected in the event of damage or destruction.
- Usage loss compensation: If a covered loss requires you to live elsewhere, loss of use coverage steps in to cover additional living expenses, such as temporary accommodation, up to a specified limit.
- Medical expense coverage: If a guest is exposed and injured in your home, this coverage will pay for their medical expenses up to a pre-set limit.
- Personal liability coverage: If you are sued because someone is injured in your home, your personal liability coverage may cover your legal costs up to your policy limits.
As you can see from this list, hazard insurance is just one element of coverage that protects your household from damage to various elements of your home and property in a variety of ways.
What is not covered by hazard insurance?
Hazard insurance provides financial protection for your home, including the roof, walls, floors, and foundation, from various hazards. Most hazard insurance policies protect against these perils, but there are also important exclusions to be aware of.
| covered | excluded |
|---|---|
| fire and thunder | earthquake |
| Vandalism and malicious mischief | flood |
| theft | sinkhole |
| riot | wear and tear |
| smoke and ash | ignore |
| volcanic eruption | intentional damage |
| falling object | pest |
| power surge | mold |
| Vehicle damage | war |
| Aircraft damage | nuclear danger |
| Weight of snow, ice, and sleet | government measures |
| hail and storm | |
| explosion | |
| Tears or cracks in hot water, air conditioning, or fire sprinkler systems. | |
| Freezing of heating, plumbing, fire sprinklers, air conditioning systems or household appliances | |
| Accidental water leakage from heating appliances. Piping, fire sprinklers, air conditioning systems or household appliances |
Some exclusions can be covered by a separate policy. For example, you can purchase earthquake insurance to financially protect your home from seismic activity. Flood insurance is also available and may be required in addition to hazard insurance by your mortgage lender.
Insurance exclusions may also vary by region. In some states and counties with high hurricane risk, wind damage may be excluded as a policy hazard. In that case, you will need to purchase wind insurance separately to enhance your hurricane insurance coverage.
Do I need hazard insurance?
Unless you own your home outright, you will probably need hazard insurance. The mortgage company has an interest in your home and wants to make sure they can recover their financial investment even if your home is destroyed. Even if you own your home outright, it’s a smart idea to insure it.
What is residential hazard insurance?
So, what does home insurance and hazard insurance cover? It depends on the type of policy you have. Peril insurance protects against specified perils or unsettled perils, depending on the type of insurance. Let’s see what that means.
A named peril policy protects your home from 16 specific home insurance perils. “Hazard” is another word for the type of disaster or accident that could damage your home, such as fire or flood.
The named hazards include explosions, falling aircraft/objects, fire, hail, and several other hazards. If a policy is based on specified perils, perils not listed in the policy are not covered by the policy.
Open peril policies are less common, but they protect against nearly every conceivable hazard, except for the exclusions specified in the policy. Common exclusions include hazards such as internal structure collapse, pollutant release, and ground movement.
Although it may seem like an open hazard policy has more exclusions than inclusions, it actually protects against far more items than a named policy. This is why open risk policies typically cost more.
There are eight types of homeowners insurance policies offered by most insurance companies, each offering either a named peril approach or an open peril approach.
However, the most common type of HO-3 insurance uses an open peril structure (that is, peril insurance) to cover the dwelling, but uses a named peril approach (i.e., peril insurance) for the contents of the home. is used, so the story gets a little more complicated. personal property coverage portion of an insurance contract). So if you have HO-3 insurance (which you probably will), it covers slightly different perils depending on whether your policy covers your residence or your personal property.
In summary, hazard insurance refers to insurance that provides direct financial coverage in the event of damage to the structure of your home due to a covered peril or peril. Liability and medical expenses are not covered. It also does not cover damage that may occur to other structures on the property, such as sheds or detached garages.
