What Is Hazard Insurance for Homeowners? How Coverage Works

What Is Hazard Insurance?

Hazard insurance is coverage that protects a property owner against damage caused by fires, severe storms, hail, sleet, or other natural events. As long as the specific weather event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred.

Depending on the policy, the property owner may need to pay their premiums to the mortgage lender, who holds the money in an escrow account and pays the insurance company on the property owner's behalf. Mortgage lenders often require you to have hazard coverage through a homeowners policy. However, it's important to make sure your policy covers the most common hazards.

How Hazard Insurance Works

Hazard coverage is usually a subsection of a homeowners insurance policy that protects the main dwelling and other nearby structures, such as a garage. Hazard insurance financially protects a property owner against physical damage to the property structures caused by sudden perils.

The events that can damage your home and surrounding structures that are covered by hazard insurance include:

• Fires
• Hail
• Lightning
• Windstorms
• Snow, including the weight of wet snow, ice, and sleet
• Rainstorms
• Sinkholes
• Other natural events

To be prepared for every contingency, homeowners should be sure that specific, common hazards are covered in their insurance policy package. Some hazard insurance policies also cover theft and vandalism.

The amount of hazard insurance required depends on what it would cost to replace the home in the event of a total loss. This dollar amount may differ significantly from the property's current real estate market value. Policies are typically written for one year and are renewable.

Hazard insurance is not usually sold as a stand-alone policy but is instead included in a comprehensive homeowners policy since it doesn't cover all types of risk, such as liability.

Extra Coverage

Homeowners can often elect to beef up the hazard coverage of their policy. It is much better to pay the upfront costs of extra insurance than to deal with the associated expenses out of pocket. As severe weather events become more commonplace across North America due to climate change, increased hazard insurance may become necessary for more homeowners.

Hazard vs. Catastrophe Insurance

Hazard insurance is often considered synonymous with catastrophe insurance. Although both deal with coverage for large-scale natural disasters, they are technically different. Within the insurance industry, hazard insurance refers to a portion of a general homeowners insurance policy that protects the structure of the home; catastrophe insurance usually refers to a separate, freestanding policy that covers specific types of disasters, including man-made ones.

Hazard Insurance and Mortgages

If you have or are taking out a mortgage on your home, it's common for your lender to require you to carry homeowners insurance. Strictly speaking, what they want you to have is, in fact, hazard coverage since it is the portion of homeowners insurance directly related to the home structure itself (as opposed to personal liability, loss of use, or personal property coverage).

Usually, purchasing a general homeowners policy will satisfy the lender's requirement, though the level of protection required will depend on the laws of the local municipality and other special considerations. If you have a very expensive property in a high-risk area, the lender may require additional coverage.

Separate Hazard Insurance Policies

In some areas, certain natural or weather-related activity is excluded from the hazard coverage of homeowners insurance—usually because the area is so prone to these events, and it's too costly for the insurance issuer to include them in a standard policy. For example, a Florida beachfront property can be susceptible to hurricanes and tropical storms; California properties located close to fault lines face earthquake threats.

Homeowners living in high-risk areas often need a separate hazard insurance policy to adequately protect their property, such as flood insurance. They might also need a policy that protects the property against landslides since conventional homeowners insurance's hazard coverage rarely covers landslides.

Frequently Asked Questions (FAQs)

The Bottom Line

Hazard insurance falls under your homeowners insurance policy, which covers physical damage to your home and other structures. Hazard insurance is designed to provide you compensation if sudden events damage your property structures, including fire, wind, hail, and snow. However, hazard insurance does not cover floods, earthquakes, and hurricanes in some regions of the country.