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What Is Hazard Insurance and When Is It Necessary?

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Buying homeowners insurance can be complicated, especially when it comes to hazard insurance coverage. As property owners shop for coverage, many wonder, "Is hazard insurance the same as homeowners insurance?" This guide explains hazard insurance vs. homeowners insurance and shows homeowners why hazard insurance is important.

Hazard insurance vs. homeowners insurance

To help homeowners understand the difference between hazard insurance vs. homeowners insurance, let's take a look at some common questions about homeowners hazard insurance and how it works.

What is home hazard insurance?

Hazard insurance is a crucial part of homeowner's insurance coverage. It provides coverage for a dwelling as well as other structures on the land. For example, home hazard insurance would pay to repair or replace a house, shed, or pool. It would provide this coverage if the home or other structure is damaged by a covered loss.

In most cases, home hazard insurance covers losses resulting from:

  • Fire
  • Wind
  • Hail
  • Vandalism
  • Civil commotion
  • Smoke damage

Most home hazard insurance policies do not cover flood damage. A separate policy will need to be purchased for homes at risk of flooding. Policies may also exclude other types of damage, such as losses resulting from a sinkhole.

Is hazard insurance the same as homeowners insurance?

What is the difference between hazard insurance vs. home insurance? Hazard insurance is a part of homeowners insurance coverage. But home hazard insurance isn't the only coverage.

See, homeowners need hazard insurance to repair or rebuild their home after a covered disaster. But they also need:

  • Personal property coverage, which pays for repair or replacement of property inside the home in case of a covered loss.
  • Loss-of-use coverage, which pays for costs incurred if a dwelling is temporarily uninhabitable as a result of a covered peril, such as a fire.
  • Liability insurance, which pays for injury or damage caused to someone else by the homeowner.

Homeowners must make sure they have hazard insurance as well as these other types of coverage.

Is hazard insurance required?

Generally, mortgage lenders require home hazard insurance. This protects the lender's interest, since the home acts as collateral for the loan.

What is covered by hazard insurance?

When homeowners compare hazard insurance vs. home insurance, they'll see hazard insurance provides protection for the house and other structures on the property, such as fences, swimming pools (if not considered personal property), sheds, and barns.

Sometimes, home hazard insurance takes the form of open peril insurance. These policies cover losses from any causes unless specifically excluded. Besides open peril insurance, there are also named peril policies. These cover losses from specific named causes, such as fires or wind damage.

What is not covered by hazard insurance?

Home hazard insurance does not cover flood damage. It may also exclude wildfire damage in certain high-risk areas.

Hazard insurance will also not pay for:

  • Loss of use of the home
  • Damage or loss to personal property
  • Damages if a homeowner is responsible for injuring others or damaging property

Homeowners need other types of home insurance to get protection from these potential losses.

How much does hazard insurance cost?

The typical homeowners insurance cost can vary dramatically based on many factors. These can include the value of the home and the amount of homeowners coverage required. The level of risk also determines premiums. Homes in higher-risk areas cost more to insure. For example, home hazard insurance may be costlier in an area prone to severe and damaging storms. Or it could be more expensive if there's a lot of crime in the area.

To make sure they get the most affordable home hazard insurance, property owners should get at least three quotes from different insurance providers. Homeowners can also look into home safety features to lower premium costs.

How much hazard coverage do you need?

It is important to have enough home hazard insurance to pay for the costs to rebuild a home and other structures on the property in case of total loss. Insurance agents can assist in determining the replacement value of a home. So can builders or appraisers.

Companies that offer the best hazard insurance

Picking a home insurance policy requires careful research. That's because different home hazard insurance companies may be right for different kinds of properties. Some insurers are more expensive in certain areas than they are in others. Or some companies may be a better fit for certain types of homes.

To find the best home hazard insurance, homeowners can check out some of The Ascent's reviews of popular insurance companies to see which might be a good option for their situation:

FAQs

  • Homeowners should never stop paying for home hazard insurance. While property owners may not be required to have hazard coverage after they no longer have a mortgage, cancelling coverage is a terrible idea.

    Homeowners need hazard insurance to protect their dwelling and other structures on their property. Home hazard insurance pays to rebuild or repair a property in the event of a covered loss. The policy would pay out, for example, after a fire or flooding caused by a burst pipe. Without coverage, a homeowner would have to cover all losses out of pocket.

  • Hazard insurance should pay for roof damage if it occurs as a result of a covered loss. For example, if a roof is damaged by wind, homeowners insurance would likely cover it.

  • Homeowners need to make sure to buy enough hazard insurance to cover the replacement cost of their dwelling. They also need to make sure they have enough home hazard insurance to pay for other structures on their property, such as sheds.

    Insurance companies can help homeowners estimate the replacement value of their home. Local builders or appraisers may also be able to provide an estimate.

  • For residential properties, the cost of home hazard insurance premiums is typically not tax deductible. However, property owners with investment properties may be able to deduct the cost of hazard insurance.

  • Mortgage lenders require home hazard insurance. Sometimes, lenders also require that homeowners make payments each month to cover the premiums. The payments are made as part of their monthly mortgage payment.

    This extra money for insurance is put into an escrow account, which is a separate account the mortgage lender maintains on the homeowner's behalf. The insurer collects the money in the escrow account and then pays home hazard insurance premiums on the homeowner's behalf.

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