When you own a home, you need to have the right insurance in place. This is especially true if you have a mortgage – your lender will require it. While most people expect to get a homeowners insurance policy, they may hear the term hazard insurance as well.
Hazard insurance is a special type of home insurance or coverage on an existing home insurance policy that protects against structural damages resulting from a natural disaster. Natural disasters include hurricanes, tornados, and earthquakes. Homeowners insurance covers other perils such as fire, burst pipes, theft, and vandalism.
What Is Hazard Insurance?
Hazard insurance is a type of policy that covers a home’s structure from losses resulting from natural disasters. Many policies only cover the structure with limited (if any) coverage for additional structures or personal belongings.
The most common causes, also known as perils, of hazard losses include:
Hazards such as tornados, hail, smoke, and wildfire are often included as hazard protection in a standard homeowners insurance policy. Other natural disasters such as hurricanes, earthquakes, and floods usually require their own policy although there are a growing number of insurance carriers who are including it in homeowners insurance.
What Is Homeowners Insurance?
Homeowners insurance coverage goes beyond the basic coverage of hazards on the structure. It includes coverage for:
- Other structures
- Personal belongings
- Loss of use
- Personal liability
- Medical payments
Homeowners insurance also protects the structure against other perils not considered major hazards such as vandalism, pipe bursts, and automobile damage.
Hazard or Home Insurance and Mortgages
Your mortgage lender will often require hazard insurance as a requisite clause for lending. If you don’t have the right coverage, your lender will obtain coverage (usually at higher-than-average costs) and impose it on you through higher payments with your mortgage through your escrow account.
How do you know what coverage is needed?
Most standard home insurance policies will cover certain hazards automatically. These include coverage for windstorm (including tornados), wildfire, smoke, and hail. If you live in a high-risk zone for another type of natural disaster, your lender may specify coverage for that as well. This includes homes in areas where floods and hurricanes are common.
Earthquake insurance tends to be the only hazard that isn’t usually a requisite from a lender. However, homeowners in earthquake country can opt to get coverage to protect against this hazard that homeowners insurance doesn’t protect against.
How Hazard Insurance Works
Generally speaking, if your hazard insurance policy is part of your main homeowners policy, you are covered to the limits of the dwelling, Coverage A value. For example, if the homeowners policy deems it would cost $175,000 to rebuild the home’s structure from the ground up, this is your Coverage A value and would be the same for the hazard portion of the policy.
When you buy a separate hazard policy, such as earthquake insurance, the policy may be what is referred to as a companion policy. As a companion policy, it matches the dwelling coverage of your home policy and is designed to offset gaps in coverage due to a specific hazard. Flood insurance through the National Flood Insurance Program (NFIP) is an exception. It limits dwelling coverage to $250,000 which may or may not be enough to rebuild a home in some areas.
In a claim, policyholders would call the insurance company that manages the hazard insurance. This would be the main home insurance policy for hazards such as hail and windstorm but the separate policy such as the earthquake insurance policy when there is ground movement.
Shopping for Hazard Insurance vs. Home Insurance
Shopping for insurance involves more than just knowing the home insurance cost. Most homeowners will want to purchase a more robust policy than just hazard insurance. You want to be covered for as many perils as possible and for a variety of other coverages beyond just the primary structure (liability, personal belongings).
When shopping for home insurance, ask your representative what hazards are covered. Then ask what common hazards for the area on not covered by the home insurance policy. Depending on what that list is (and what your lender requires), you’ll then need to explore specific policies that cover those losses.
Make sure the dwelling coverage on your hazard policy matches your home insurance. Ask about the conditions in which you’d need to make a claim on the policy. For example, you may get hurricane insurance and your home may be damaged by a tropical storm; this would mean the home insurance covers you and not the hurricane insurance.