What Is Hazard Insurance

What Is Hazard Insurance?

Hazard insurance is a component of your homeowners policy that protects the structure of your home from specific disasters such as fires, hail, storms, and more.

Here's a primer on hazard insurance, including how it works, what it covers, and when you might need it.

Definition of Hazard Insurance

Hazard insurance is one of the coverages included in your homeowners insurance policy. It protects your home's structure against losses or damage caused by natural disasters, also known as hazards or perils. It's the same as the dwelling coverage in your policy.

Storms, fires, and vehicle accidents are frequently listed as covered risks. Flooding and earthquakes, on the other hand, are frequently overlooked.

Hazard insurance and homeowners insurance are sometimes used interchangeably, but they are not the same thing. Hazard insurance is a subset of homeowners insurance coverage, whereas homeowners insurance includes a wide range of coverages (other structures on your property, personal property, certain liabilities, and more).

However, if a mortgage lender requests hazard insurance, they are referring to the purchase of homeowners insurance. Hazard coverage is typically not available on its own.

How Hazard Insurance Works

Your property and structures are valuable assets that are naturally vulnerable to the elements. Whether you own the property as a resident or an investor, you probably don't want to risk leaving it uninsured.

Your mortgage lender, predictably, does not want you to. To qualify for financing, most lenders require that you obtain a homeowners policy with hazard insurance.

If a covered incident occurs, your hazard insurance coverage requires your insurance company to reimburse you for some or all of your losses, less your deductible and up to the policy limit.

Assume you have an ACV homeowners insurance policy with hazard insurance and a $1,000 deductible. When you get home one day after a storm, you discover that the wind knocked a tree into your house, crushing a portion of your roof. The repairs will cost $12,000, but your roof has depreciated by $3,000 since you last replaced it. If your claim is approved, you will receive $8,000 in insurance proceeds ($12,000 less depreciation and your deductible).

What Does Hazard Insurance Cover?

Hazard insurance protects your home's structure against certain perils. The specific perils covered vary depending on your policy, but they frequently include:

Fire
Hail
Lightning
Theft
Vandalism
Fallen trees
Vehicles that run into your home
Explosions

Do I Need Hazard Insurance?

Hazard insurance is a component of your homeowners insurance policy, so any situation in which you may need to insure a property that you own generally necessitates the purchase of hazard insurance.

That usually happens when you're trying to close on a mortgage. Before you can close, your lender will usually require you to purchase a homeowners policy with adequate hazard insurance. After all, the house is the lender's collateral.

Remember that even if you own your home outright, you should get hazard insurance to protect your investment.

Hazard insurance is unlikely to be relevant if you are renting your home. Instead, because it covers the building itself, your landlord or whoever owns the building would have this policy. However, damage to your belongings from similar perils is frequently covered by a renters insurance policy.