What is hazard insurance? Coverage, costs, and mortgages

Hazard insurance is the part of your homeowners policy that helps pay to repair or rebuild your home’s structure after it’s been damaged by covered events like fire, wind, or hail. Most mortgage lenders require it because your home is their collateral. Here’s what hazard insurance for homeowners covers (and doesn’t), how claims work, and how it affects your mortgage and closing costs.

Key takeaways:

• Hazard insurance protects your home’s structure by helping you pay to repair or rebuild the physical structure of your home after events such as fire, windstorms, hail, lightning, and other covered disasters.
• Most mortgage lenders require homeowners insurance, which includes hazard insurance. Because your home serves as collateral for your mortgage, lenders typically collect premiums through an escrow account to ensure you maintain coverage.
• Hazard insurance doesn’t cover every risk. Standard policies usually exclude flooding, earthquakes, routine maintenance issues, and wear and tear. So, you may need separate insurance policies or additional coverage.

What is hazard insurance?

Hazard insurance pays to repair or rebuild a home if it is damaged by covered risks known as perils, which usually include fires, windstorms, hailstorms, lightning strikes, or other unexpected disasters.

In a major disaster, hazard insurance for homeowners may serve as the financial safety net that protects you from potentially devastating repair or rebuilding costs.

If you’re buying a home with a mortgage, the lender will require you to carry hazard insurance. Typically, hazard insurance is included in your homeowners insurance policy or your condo insurance policy.

Depending on where you live, you might also need a Natural Hazard Disclosure (NHD) report. This report tells you whether the property is in a high-risk zone for certain natural hazards, such as storms and wind.

What part of your home does hazard insurance protect?

Hazard insurance primarily protects the structure of your home, including the roof, walls, foundation, floors, any built-in appliances, permanently installed fixtures, and attached garages.

For example, say a lightning strike causes a fire that damages your home’s roof and interior. Hazard insurance helps cover the cost of repairs.

It’s important to study your policy carefully, since different coverages apply to different areas.

Do you need hazard insurance?

For most homeowners, the answer is yes, homeowners insurance is required. While hazard insurance is not legally required, your lender will require it as long as you have a mortgage.

Also, the cost of not having it when disaster strikes could be catastrophic for your finances. Hazard insurance is designed to help you pay for repairs and rebuilding after major events. These costs can reach tens of thousands or even hundreds of thousands of dollars.

Is hazard insurance required for a mortgage?

Yes, mortgage lenders require borrowers to carry hazard insurance.

Remember, your home is collateral for the loan. Hazard insurance protects the home from loss of value due to damage, thereby protecting the lender from being unable to recoup its losses by selling the home in the event of foreclosure.

When you may need additional coverage

Standard hazard insurance doesn’t protect you against every type of peril. Depending on where you live, you may need additional coverage to protect your home from:

• Flooding
• Earthquakes
• Hurricanes
• Landslides
• Mudslides

If your home is at risk for these perils, you may want to buy an additional policy to protect your home, such as flood insurance or earthquake insurance.

Hazard insurance vs. homeowners insurance: Is there a difference?

Is hazard insurance the same as homeowners insurance? Sort of. Hazard insurance is part of homeowners insurance.

Hazard insurance protects your home’s physical structure. Your homeowners insurance also includes protection for your personal belongings if they are stolen, or it will cover medical bills associated with injuries that happen on your property.

Why lenders refer to hazard insurance

Lenders often refer to hazard insurance as if it’s a separate policy because your home is the collateral they have based your mortgage on. Because hazard insurance is the part of your homeowners insurance that protects the dwelling, which is the physical structures of your home, that’s what lenders are mainly concerned about.

Hazard insurance vs. mortgage insurance

Hazard insurance and mortgage insurance serve different purposes.

Hazard insurance, on the other hand, protects both you and the lender. It helps repair or rebuild the home after a covered disaster. Mortgage insurance protects the lender in case you default on your mortgage loan, and it may be required when you make a smaller down payment on a home.

For instance, private mortgage insurance (PMI) is required if you make a down payment of less than 20% on a conforming conventional loan. Other loans, such as government-backed loans, have different mortgage insurance requirements.

How does hazard insurance work?

When your home is damaged by a covered peril, hazard insurance pays out to cover repairs or rebuilding costs up to your policy’s limits.

For example, let’s say a homeowner has hazard insurance that includes fire as a covered damage. If the home is damaged in a fire, the homeowners hazard insurance policy will help pay for repairs.

To confirm what’s covered by your policy, look at the declarations page and the fine print of your insurance policy.

Making a hazard insurance claim

If your house is damaged by a covered event, it’s time to make a hazard insurance claim. Although the claims filing process can vary from insurer to insurer, here’s what to expect and do.

• Document the damage: Start by taking photos of any damage that’s occurred. If possible, take reasonable steps to protect your property from further damage.
• File a claim: With documentation of the damage in hand, file a claim with your insurance company. You may need to do this online or over the phone.
• An adjuster will inspect the damage: Typically, the insurer will send an adjuster to inspect the damage and ask questions about the claim.
• You receive a payout minus your deductible: After the insurance adjuster considers the claim, you’ll receive a payout to cover the damages, minus your deductible.

Throughout the claim process, do your best to communicate with the insurance company. Timelines will vary and might feel longer than you’d like, especially after a natural disaster. But regularly communicating with the insurer can keep your claim moving forward.

What does hazard insurance cover in your home?

Hazard insurance only covers what is listed explicitly in the policy. Typically, hazard insurance covers the following perils:

• Fire or smoke damage
• Windstorms and hail
• Vandalism
• Theft
• Lightning
• Snow, ice, or sleet damage
• Car or aircraft damage
• Fallen trees and objects
• Heating, AC, or electrical damage
• It’s important to review the details of your specific policy to understand what’s covered for your home.

Named-perils and open-perils policies

A named-peril policy only covers specific events listed in your policy. In contrast, an open-perils policy covers all damage from perils not explicitly excluded. Generally, an open-perils policy offers more comprehensive protection than a named-perils policy.

Examples of hazard insurance

Here are some examples of when your hazard insurance may kick in:

• A kitchen fire damages cabinets and walls.
• A hailstorm destroys portions of the roof.
• A lightning strike causes structural damage to a wall.
• A tree falls onto the house during a windstorm, damaging the roof and walls.
• An explosion damages part of the home’s structure.

What’s not covered by hazard insurance

Hazard insurance policies don’t cover every peril. Common exclusions include:

• Personal property damage. Some policies include protection for your personal belongings. But most don’t cover expensive items, like jewelry or art.
• Injuries sustained on your property. Hazard insurance won’t cover the costs of injuries that happen on your property. But the liability insurance included in your home insurance policy might.
• Flooding damage. Flood damage usually isn’t covered by a standard home insurance policy.
• Earthquakes. Damage from an earthquake typically isn’t covered by a standard hazard insurance policy.
• Landslides and mudslides. As with floods, landslide and mudslide damage typically isn’t covered by hazard insurance.
• Pest infestations. Damage caused by pests, like termites, usually isn’t covered by hazard insurance.
• Mold damage. Unless the mold damage is the result of a covered peril, hazard insurance usually won’t cover mold damage.
• Wear and tear. General wear and tear isn’t covered by hazard insurance.

Although a hazard insurance policy doesn’t cover every possible damaging event, it’s possible to buy other policies to protect yourself. For example, you can purchase separate flood or earthquake policies to help pay for damage caused by these types of events.

Coverage that may be part of homeowners insurance instead

The good news is that while some losses aren’t covered by hazard insurance specifically, they may be covered in another section of your homeowners insurance policy.

• These may include:
• Personal belongings
• Liability claims
• Medical payments
• Additional living expenses

For example, depending on your policy, additional living expenses coverage may help pay for a hotel if a covered loss makes your home temporarily uninhabitable. This is why it’s important to shop for policies carefully.

Coverage you may need to buy separately

Some risks may not be covered by a standard homeowners insurance policy or the hazard insurance section within it.

A common example is homes in a flood zone. Many homeowners get flood coverage through the National Flood Insurance Program (NFIP), which is managed by FEMA, or from private flood insurers. Earthquake insurance is another coverage that’s often sold separately.

How much does hazard insurance cost?

The cost of hazard insurance depends on where your home is, its condition, and whether you have a mortgage on it. The U.S. Census Bureau reports Nevada has the lowest median annual property insurance costs for mortgaged homes at $929, and Florida has the highest at $2,273, as of 2023. Without a mortgage, Colorado was the most expensive at $1,706, and West Virginia was the cheapest at $617.

Insurance companies generally determine your home insurance rates by considering the risks associated with your home. Some factors that play a role in determining your home insurance costs include:

• Where you live: Your home’s location has a significant impact on your insurance costs. Some risks, like storms, are more of a threat in some locations than others.
• The type of home you own: How well your home may hold up to tough weather conditions may impact your insurance costs.
• Your claims history: A history of many claims could lead to higher insurance costs.
• The age of the home: Older homes may face higher insurance costs due to outdated building methods.
• Your credit score: In many states, insurers can look at your credit score when determining rates. Generally, homeowners with higher credit scores enjoy lower insurance costs.

Deductibles and limits

A deductible is the amount you pay before insurance coverage begins. A coverage limit is the maximum amount your insurer will pay for a covered loss. Higher deductibles often reduce premiums, while higher coverage limits may increase them.

Hazard insurance premiums and escrow

Most homeowners insurance policies are paid annually. To make the bill easier to pay, many lenders add an estimated prorated amount to your mortgage payment and hold the funds in an escrow account, also known as an impound account. When the bill comes due, your lender pays it on your behalf, on time and in full. This helps ensure your insurance coverage never lapses.

How to get hazard insurance

Buying hazard insurance is relatively simple because it’s included in your homeowners insurance policy.

However, you may need additional, separate policies to cover hazards specific to your area that are not covered by a standard policy. For this reason, it’s important to check with your insurer and mortgage lender about proper and adequate coverage.

Review your declarations page

This is a vital step. Your policy’s declarations page outlines key coverage details. These include things like your coverage limits, deductibles, covered structures, effective dates, and more.

Confirm lender and location requirements

You need to confirm with your lender the requirements for any coverage you need for your location. Certain areas are open to hazards not covered in a standard policy, such as hurricanes, earthquakes, and floods.

FAQ

Here are answers to common questions about hazard insurance.

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 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.

Why is hazard insurance on my mortgage bill?

Your mortgage lender might be setting aside a portion of your monthly payment in an escrow account to pay for hazard insurance costs.

What happens if I don’t have hazard insurance?

If you don’t have hazard insurance, you’ll have to pay to repair your home after a damaging event without the help of an insurance company. However, if you have a mortgage, you are required to maintain a hazard insurance policy. If you do not have one, the lender may purchase one on your behalf.

Can I remove hazard insurance from my mortgage?

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

How does my credit score affect insurance?

In many states, insurers can look at your credit when determining insurance premiums. Generally, a higher credit score leads to lower insurance costs.

The bottom line: Hazard insurance can protect what’s precious to you

Hazard insurance is a part of homeowners insurance. However, depending on where you live and your financial situation, your homeowners insurance policy may or may not include all the coverage you need. That’s why it’s wise to speak with your insurance agent and your mortgage lender to ensure you have the necessary coverage for your area.

If you’re ready to buy a home, explore your borrowing options today with Rocket Mortgage.