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Hazard Insurance: What Homeowners Need To Know

June 06, 2024 4-minute read

Author: Ashley Kilroy

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Hazard insurance is an essential part of protecting your property as a homeowner. It can provide you with financial protection and peace of mind against natural disasters like fires, storms and earthquakes.

Although it’s necessary for many locations, some people are unaware that hazard insurance exists or why they might need it.

What Is Hazard Insurance On A Mortgage?

Mortgage hazard insurance protects your home from natural disasters or hazards. It’s usually a requirement when qualifying for a mortgage.

Some regions also require the purchase of a Natural Hazard Report, also known as an NHD report, which shows if your property rests in a natural hazard zone or high-risk area. These hazards may include fires, severe windstorms, hail, sleet or other natural events.

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How Does Hazard Insurance Work?

Let’s say a person has hazard insurance, and the specific natural occurrence that happens is covered within their policy. In that case, the homeowner will be compensated for the damage that occurs to their property. Even if a property isn’t in a high-risk area, it’s wise to have hazard insurance to protect your property and finances.

For example, let’s say you have hazard insurance coverage that protects against straight line winds and your roof is damaged by a windstorm. You can file an insurance claim for the roof and some of your outdoor furniture that was also damaged.

You have a deductible of $800 but the sustained damages will cost about $3,000 to fix. This means your insurance company will pay you $2,200 for the repair and replacement costs.

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What Does Hazard Insurance Cover On Your Home?

It can be confusing to understand what is and isn’t covered by a hazard insurance policy. In general, hazard insurance will cover only the occurrences listed explicitly in the policy. Therefore, it’s crucial to ensure that your hazard insurance policy covers disasters in your area. For example, if you live in the mountains, it may be reasonable to expect heavy snow and the potential damage it can bring.

It’s important to remember that not all hazard insurance is the same. Be sure to read through your homeowners insurance policy and speak with your insurance agent to learn what exclusions or risks your policy may have. You may need to purchase additional types of coverage to protect against specific events, like if you buy a home in a flood zone, you might need to purchase additional flood insurance.

What’s Covered Vs. Not Covered

Most natural disasters and some malfunctions within the home are covered by hazard insurance. However, certain types of damage aren’t covered and you may need special or additional policies.

For example, if your home is in an earthquake-prone area, it may not be covered by hazard insurance, so you might want to also purchase earthquake insurance separately. Your hazard insurance coverage will change depending on where you live, so you may add additional insurance or purchase a separate policy that covers specific occurrences.

Covered By Hazard Insurance

Not Covered By Hazard Insurance

Fire and smoke damage

Damages to personal property

Wind damage

Injuries sustained on your property

Hail damage

Water damage caused by flooding

Lightning damage

Earthquakes

Damage from snow, ice or sleet

Landslides

Damage from vehicles (including cars and aircraft)

Mudslides

Fallen trees and other objects

Infestations from pests

Theft and vandalism

Mold damage

Damage caused by heating, AC units or electric currents

General wear and tear over time

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Is Hazard Insurance The Same As Homeowners Insurance?

Hazard insurance is a subsection of homeowners insurance and not separate home insurance coverage. Therefore, it’s important to note that lenders refer to hazard insurance separately, even though it’s a portion of a homeowners insurance policy that protects against most natural disasters.

Besides protecting against hazards, homeowners insurance covers other events, too, like stolen personal belongings, damage to your home’s structure or injuries that can occur in the home.

Home Hazard Insurance FAQs

Explore these frequently asked questions to learn more about hazard insurance and how it works.

How much does hazard insurance cost?

The cost of hazard insurance differs depending on several factors like where you live and your credit score. In certain areas prone to natural disasters such as flooding or earthquakes, you may have higher add-on costs or have to purchase them separately, if not already included.

Since hazard insurance is especially expensive in some areas, many mortgage lenders offer an escrow account that splits the cost of an annual insurance premium into monthly payments.

Do mortgage lenders require you to buy hazard insurance?

Qualifying for a mortgage usually requires you to have a certain amount of hazard insurance under your homeowners insurance policy. Additional coverage, like for tornadoes, might be required by your lender, based on your area's natural disaster risk. Keep in mind that requirements vary by lender and location, so consider this when shopping for a mortgage.

Can I remove hazard insurance from my mortgage?

Once you pay off your mortgage, you may be able to adjust coverage or have your lender remove the mortgage lien from your house, allowing you to remove the hazard insurance. If you cancel hazard insurance, you will be fully responsible for any property damage or loss caused by natural disasters.

How do I get hazard insurance?

Most mortgage lenders require homeowners insurance as part of buying a house. Hazard insurance falls within the general homeowners insurance policy, which means in order to get hazard insurance coverage, you need to have a homeowners insurance policy.

To find the best hazard insurance for your home and budget, get multiple quotes to ensure you have the right amount of coverage at an affordable price.

The Bottom Line

Hazard insurance is a part of homeowners insurance. Depending on where you live and your lifestyle, your insurance may or may not include all the coverage you need. Therefore, it’s wise to speak with your insurance agent and your mortgage lender to ensure you have the necessary coverage for your area.

Now that you understand how hazard insurance can protect a home, start the mortgage process today if you’re ready to explore your loan financing options.

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Headshot Ashley Kilroy

Ashley Kilroy

Ashley Kilroy is an experienced financial writer. In addition to being a contributing writer at Rocket Homes, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.