Hazard insurance, also called dwelling insurance, is the portion of a standard homeowners policy that protects the structure itself (foundation through roof) against covered perils. In mortgage lending, this is the dwelling/“Coverage A” protection. Lenders require it because they have a financial interest in the home and must ensure the collateral is protected; the structural coverages and exclusions generally follow the terms of a standard homeowners policy.
For most standard insurance policies, hazard insurance pays for claims related to defined perils such as wind, fire, lightning, explosion, damage from an aircraft or vehicle, and the weight of snow/ice. In many catastrophe‑exposed areas, policies use separate percentage deductibles for wind/hail or named storms/hurricanes, commonly ranging around 1%–5% of the dwelling limit where allowed by state law and custom (Insurance Information Institute). Perils excluded from standard homeowners policies—most notably flood—require separate coverage via the NFIP or private flood insurers (FloodSmart). In earthquake‑prone regions, earthquake insurance is typically bought as a separate policy informed by updated seismic hazard mapping (USGS).
Hazard Insurance and Mortgages
Your banker or mortgage lender requires hazard insurance for as long as you hold the mortgage to protect its security interest. Current agency guides specify how much and what kind: the GSEs expect coverage at replacement cost, or alternatively tied to the unpaid principal balance (UPB) if it equals at least 80% of the home’s insurable value and coinsurance penalties are waived by endorsement; deductibles must be reasonable and customary, including percentage deductibles for wind/named storms where typical (Fannie Mae; Freddie Mac). Acceptable policy forms include standard HO-3 (or better) issued by eligible carriers; state FAIR Plan property policies are allowed when necessary, often paired with a supplemental difference‑in‑conditions policy to round out perils and liability (Fannie Mae, Freddie Mac). Flood insurance is mandatory when a home lies in a FEMA Special Flood Hazard Area for a federally related mortgage; lenders may accept NFIP or qualifying private flood policies that meet federal and GSE criteria (FEMA; Fannie Mae private flood; FHA Handbook 4000.1; VA Chapter 12).
At closing, lenders typically require a binder or evidence of insurance and may collect premiums in an escrow account so the servicer can pay renewals on schedule. If required insurance lapses, servicers can place lender‑placed (force‑placed) coverage that is usually more expensive and less protective for the borrower (CFPB). Markets under stress sometimes rely on FAIR Plans, and some programs add state‑specific obligations—for example, many policyholders insured through Florida’s Citizens must maintain a separate flood policy under a phased requirement created by 2023 legislation (Citizens). Percentage deductibles for wind/hurricanes (often 1%–5%) are common in coastal states and are acceptable to the GSEs when they are customary for the area (Insurance Information Institute; Fannie Mae).
What does Hazard Insurance cover you from?
Although policy specifics vary, hazard insurance addresses perils such as fire, wind, hail, lightning, explosion, and the weight of ice/snow. The broader risk backdrop has shifted: the U.S. averaged about 20 billion‑dollar weather disasters per year in recent years compared with roughly 3 per year in the 1980s, with a record 28 events in 2023 (NOAA NCEI). Severe convective storms (hail, straight‑line wind, tornadoes) have been leading drivers of insured losses in the U.S., including through 2024 (Aon). Globally, 2024 was assessed as the warmest year on record, a climate signal consistent with heavier downpours and amplified flood risk (WMO). Standard homeowners policies exclude flood; just one inch of water can cause about $25,000 in damage, underscoring the need for separate flood coverage (FloodSmart). Earth movement (e.g., earthquakes, landslides) is also generally excluded unless you buy specific coverage.
Hazard insurance is only one part of a homeowners policy—the policy also includes coverage for personal belongings, liability, and usually additional living expenses (ALE) if your home is uninhabitable after a covered loss. Claims handling has modernized: many insurers now support digital first notice of loss, photo/aerial imagery‑assisted inspections, virtual estimating, and electronic payments to speed resolution when appropriate (CCC Crash Course 2024; LexisNexis Future of Claims 2024). Clear communication remains essential to satisfaction, especially after large catastrophes (J.D. Power).
What Hazards are included?
- Civil unrest or riot
- Damage caused by the weight of snow, sleet, or ice (subject to policy terms; roof settlement can vary by insurer/state)
- Explosions
- Falling objects
- Fire and smoke
- Hail (often subject to a separate wind/hail deductible in some states)
- Lightning
- Power surges (coverage can be limited; equipment breakdown endorsements may broaden protection)
- Theft
- Vandalism
- Water damage caused by a household appliance or burst pipe (sewer/drain backup typically needs an added endorsement)
- Wind and windstorms (named-storm/hurricane deductibles may apply in coastal regions)
- Damage caused by a car or aircraft
What Hazards are not included?
- Earthquakes (usually excluded; separate earthquake coverage is typically required)
- Flooding (excluded from standard policies; separate NFIP or private flood insurance is needed)
- Landslides and mudslides (earth movement is generally excluded)
- Hurricanes (may require additional coverage depending on your location)
- Normal wear and tear to the building
What’s the cost of Hazard Insurance?
The cost of hazard insurance varies greatly depending on a number of factors, including location risk, the home’s replacement cost, roof age/condition, and your claims and credit history where permitted. A widely cited consumer benchmark places the national average homeowners premium around $1,759 per year (about $147 per month) for a policy insuring roughly $250,000 in dwelling coverage (Bankrate). Many states saw double‑digit premium increases through 2023–2024 with continued upward pressure into 2025 as insurers responded to catastrophe losses, higher reinsurance costs, and elevated rebuild‑cost inflation (Policygenius; Insurance Information Institute). Construction materials and labor costs have stayed elevated, pushing required Coverage A limits and premiums higher (Verisk).
Location drives the biggest differences: catastrophe‑exposed states (coastal wind/hurricane, hail alley, wildfire zones) often pay multiples of the national benchmark, and policies in these areas may carry separate percentage deductibles for wind/hail or named storms (Insurance Information Institute). Official state averages from the NAIC are authoritative but reported on a lag; obtaining multiple live quotes in your ZIP code will better reflect current market conditions (NAIC). In constrained markets, compare admitted carriers, private/surplus lines, and state FAIR Plans as a last resort, recognizing that FAIR Plans may require supplemental policies to match standard coverage breadth (FAIR Plans explained).
How much Hazard Insurance do you need?
You should have enough hazard insurance to rebuild your home at its current replacement cost. Conforming lender guides allow coverage equal to 100% of insurable value, or at least the UPB so long as that amount is at least 80% of insurable value and coinsurance penalties are eliminated or waived by endorsement (Fannie Mae). Because replacement cost tracks local construction inflation, review your dwelling limit regularly and consider inflation‑guard and extended/guaranteed replacement cost options where available (Verisk).
In the event that your home is damaged or destroyed from something that is not a named peril — for example, water damage resulting from a flood — you should also talk to your agent about supplemental coverages, called amendments, that can expand your coverage for disasters that are not named in your base policy. High‑value 2024–2025 add‑ons include: ordinance or law/code upgrade coverage; water/sewer backup; service line; equipment breakdown; inflation guard; and extended/guaranteed replacement cost. Flood is purchased separately (NFIP or private) and often has a 30‑day waiting period before coverage begins (FloodSmart; FEMA waiting period); service line coverage and similar options are commonly endorsed to close gaps (Insurance Information Institute).
Frequently Asked Questions
Is hazard insurance and homeowners insurance the same thing?
Not quite. Hazard, or dwelling insurance, is one part of a comprehensive homeowners policy. The latter may also include coverage for personal belongings, liability coverage, and coverage for medical payments in the event that someone is injured in your home. When shopping, compare multiple financially strong carriers and understand state availability—large nationals (e.g., State Farm, Allstate, USAA, Travelers, Nationwide, Liberty Mutual, Farmers) write much of the market, while mutual/regional carriers and high‑net‑worth specialists fill important niches (NAIC market share). In some catastrophe‑exposed states, capacity constraints mean you may need a state FAIR Plan as a backstop plus supplemental coverage (FAIR Plans explained). Independent satisfaction studies can help compare claims/service experience (J.D. Power).
What is the difference between hazard insurance and flood insurance?
Basic hazard insurance does not cover flood damage. If your home is in a flood zone or you are concerned about flooding damage, you’ll want to talk to your insurer about purchasing additional flood insurance so you can be fully protected in the event of water damage from flooding. Lenders must require flood insurance for homes in FEMA Special Flood Hazard Areas tied to federally related mortgages, and they may accept NFIP policies or private flood policies that meet federal and GSE equivalency standards (FEMA; Fannie Mae private flood). NFIP policies generally have a 30‑day waiting period before coverage begins (FEMA waiting period).
What kind of natural disasters are covered by hazard insurance?
Most common natural disasters are covered by hazard insurance, including fire, wind, lightning, explosions, snow/ice damage, and more. In higher‑risk states, insurers frequently apply separate wind/hail or named‑storm/hurricane percentage deductibles that can materially change your out‑of‑pocket costs—model the dollar impact at your dwelling limit and confirm any roof settlement terms (some hail‑exposed policies pay roof surfacing at actual cash value unless you buy an endorsement) (Insurance Information Institute; Aon). Given the elevated pace of billion‑dollar disasters (NOAA NCEI), review your coverage and deductibles annually and ask how digital FNOL, virtual inspections, and electronic payments will work if you need to file a claim (CCC Crash Course 2024).
