Hazard insurance, also called dwelling insurance, is the section of your homeowners insurance policy that covers damage to the structure itself, from foundation to roof. Hazard insurance is required by your mortgage holder, who has a financial interest in making sure your property is protected.
For most standard insurance policies, hazard insurance pays for claims related to a list of named perils, which include wind, fire, lightning, damage from an aircraft or vehicle, the weight of snow, ice, or sleet, and more. For areas that are prone to disasters such as tornadoes or hurricanes, additional hazard insurance may need to be purchased to adequately cover the home.
Hazard Insurance and Mortgages
Your banker or mortgage lender requires hazard insurance for as long as you hold the mortgage, because until you pay it off, the bank basically owns all or part of your home—and it wants that investment protected.
At the closing for your home, money was put into an escrow fund, which is held by a third party on behalf of you and your lender. One of the reasons for the escrow fund is to hold your hazard insurance premiums. Those premiums are then added to the amount you pay the bank monthly for your mortgage payment, and are released regularly to the insurance company, often on a quarterly basis.
What does Hazard Insurance cover you from?
Although there may be differences from policy to policy in what hazard insurance covers, many standard policies cover you for named perils, which are natural or man-made disasters that may damage your home. As we mentioned above, those perils include fairly common occurrences such as fire, wind storms, or damage caused by the weight of snow or sleet on your roof. Not covered by most policies are flood and earthquake damage and damage caused by landslides.
Hazard insurance is only one part of a homeowners policy, however, and it only covers the structure of your home. With the homeowners policy you will also have additional coverage for your furniture and personal belongings, as well as liability coverage in the event that a visitor to your home is hurt or their property is damaged.
What Hazards are included?
- Civil unrest or riot
- Damage caused by the weight of snow, sleet, or ice
- Falling objects
- Fire and smoke
- Power surges
- Water damage caused by a household appliance or burst pipe
- Wind and windstorms
- Damage caused by a car or aircraft
What Hazards are not included?
- Landslides and mudslides
- 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 where you live, the age and condition of your home, and your claims and credit history. An older home, for example, is likely to have a higher hazard insurance cost because it is more likely to need big-ticket repairs in the event of a disaster due to an aging infrastructure.
The location of your home is a big part of what determines your costs. According to the Insurance Information Institute, the average cost of homeowners insurance in Oregon, for example, is $677. A resident of Louisiana, which experiences severe hurricanes and summer storms, will pay an average of $1,968.
How much Hazard Insurance do you need?
You should have enough hazard insurance so that you would be able to rebuild your home if it were destroyed by a named peril. Note that this may be different from your home’s market value. To determine the amount of hazard insurance you need, you’ll have to consider construction and other costs associated with rebuilding in your area.
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.
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.
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.
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 damage, and more. Since there are variations from one company to another, give your policy a careful reading to find out exactly what you’re covered for.