Hazard Insurance: What Homeowners Need To Know
June 22, 2023 5-minute read
Author: Ashley Kilroy
An essential part of the home buying process is determining what kinds of coverage you’ll need. One of the policies you may be required to purchase is hazard insurance. Although it is necessary for many places, some people are unaware that hazard insurance exists or why they might need it.
If you’re confused about hazard insurance, this article will tell you everything you need to know.
What Is Hazard Insurance?
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.
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 only cover 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 an additional policy.
Several categories are covered by hazard insurance. Most are natural disasters, but some malfunctions within the home are covered by hazard insurance as well. These include:
- Fire and smoke damage
- Hail and wind damage
- Lightning damage
- Damage from snow, ice or sleet
- Damage from vehicles, including cars, aircraft and more
- Fallen trees and other objects
- Theft and vandalism
- Damage caused by heating, AC units or electric currents
Damages to personal property or injuries sustained on your property are not covered by hazard insurance. With this in mind, if a natural disaster happens, hazard insurance only protects the structure of your home from a disaster named in your policy. This may include the home’s structure, any garages or sheds, fences and some belongings inside the home if a covered event damages them.
Additionally, water damage caused by flooding is not covered, and homeowners will need to purchase flood insurance separately. Earthquakes, landslides and mudslides are also not covered in high-risk areas.
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. 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.
Other instances that aren't covered might include infestations from pests, mold damage or wear and tear that can happen over time.
How Much Does Hazard Insurance Cost?
The cost of hazard insurance differs depending on several factors. Some of these factors include where you live and your credit score. Additionally, the deductibles and policy limits that you select will play a part in determining the cost of hazard insurance.
Your location can significantly alter your hazard insurance cost because of the risks associated with different areas. For example, if you live in a flood plain or an earthquake zone, you may have a higher risk of a natural disaster. However, these things might not be included in your hazard insurance policy.
Because 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.
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 or injuries that can occur in the home. The most common types of home insurance protection includes:
- Personal property coverage: This coverage protects your items in the event they’re stolen or damaged.
- Liability coverage: Your policy will cover legal costs if anyone files a lawsuit against you. For example, if someone slips on your icy driveway during winter and they take you to court for their medical bills, your coverage would protect you.
- Dwelling coverage: This part of your insurance protects your home’s structure in case it’s damaged.
- Other structures coverage: If you have a detached garage, fences or outbuildings, you’ll want to make sure that your policy offers coverage for additional structures.
- Additional living expenses coverage: Your insurance company will also pay your daily living expenses if you’re unable to live in your home. This coverage usually includes hotel stays and meals at restaurants.
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. A lender may require additional hazard coverages, such as tornadoes, depending on the number of natural disasters in your area. Every lender and location has different requirements; therefore, this is a consideration when shopping for a mortgage.
The Bottom Line
Hazard insurance is a part of homeowners insurance. Depending on where you live and your lifestyle, hazard 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 that you have the necessary coverage for your area.
If you’re curious about other ways to protect your home and savings account from costly repairs, read about home warranties and how this service can provide you with additional peace of mind.
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