What is hazard insurance for homeowners?
When you’re getting ready to close on your new home, your lender may ask to see proof of hazard insurance. You may have a lot of questions: “What is hazard insurance for homeowners? Is that different than homeowners' insurance?” Don’t panic – hazard insurance is typically part of your homeowners’ insurance, not an additional policy.
What does hazard insurance cover?
Hazard insurance, sometimes called dwelling coverage, is the subsection of your homeowners insurance policy that covers your house if it gets damaged. This is largely related to damage incurred from natural events, such as fires, lightning, hail, wind, snow or rainstorms. However, hazard insurance generally doesn’t cover damage to property inside your home, such as furnishings or personal belongings.
Hazard insurance can be categorized as either an “open perils” policy or a “named perils” policy. Open perils can cover anything that is not specifically excluded in the contract, while named perils covers those things that are specifically documented in the contract.
In some areas, certain natural or weather-related events may be excluded from coverage. This is usually because that area is prone to those types of events and including that coverage would be too costly for insurance companies and customers. However, if you’re in an area prone to flooding, for example, you will likely need an additional hazard insurance policy to protect you, such as flood insurance.
If your home suffers damage from an event covered by your policy, one of the first things you will want to do is contact your insurance company to file a claim. You’ll need to follow their instructions closely, but you can generally do this online or over the phone. You’ll want to take plenty of photos and videos and document damage in writing. Your policy, how much the damage will cost to repair, your deductible and your coverage limit will inform your payout.
Average cost of hazard insurance
As described earlier, standard homeowners policies usually include some form of hazard insurance as part of the cost. If you need to purchase additional coverage, possibly for a recurring hazard like flooding, this will add to the overall cost.
In cases where you don’t have to purchase additional coverage, the average cost of insurance can vary greatly depending on where you live. States that have a lower risk of natural disasters will usually have lower homeowners insurance costs, on average.
Some other factors that help determine the cost of homeowners insurance, and thus the cost of hazard insurance, are your zip code, the age of your home, its square footage, the type of insurance policy you buy and your deductible, among many others.
Is hazard insurance required?
Yes, if you have a mortgage, you’ll generally be required by your lender to have proof of hazard insurance within your broader homeowners policy. While most states don’t mandate homeowners insurance, your lender will usually require it to protect their financial interest in your home.
Even if you buy a house outright with cash and don’t have a lender requiring homeowners insurance, insurance agents and financial professionals generally suggest having a policy in place. This helps protect your expensive purchase against things out of your control.
In summary
To recap: What is hazard insurance for homeowners? Hazard insurance is the subsection of your homeowners insurance policy that covers your home’s physical structure in the event of a natural disaster such as fire, snow, hail, wind and more. It typically doesn’t cost extra, as the price is often included in the cost of your homeowners insurance, which itself will vary depending on various factors like the size and location of your property, the specific policy you choose and more.
Hazard Insurance: FAQs
1. Is hazard insurance tax deductible?
No — generally speaking, homeowners insurance (and therefore, hazard insurance) is not tax deductible. For more specific information, consult with a tax preparer.
2. Is hazard insurance the same as PMI?
No, hazard insurance is not the same as PMI. Hazard insurance protects you in the event of damage to your home caused by natural events. PMI, or private mortgage insurance, protects lenders in case a borrower can’t make their mortgage payments.
3. Does hazard insurance cover flooding?
Hazard insurance does not typically cover flooding. If you’re in a flood zone, or just concerned about flooding, you can often purchase a separate flood insurance policy.
4. Does hazard insurance cover fire damage?
Hazard insurance may protect your home in the event of accidental fire damage. Intentional fires set by the homeowner are not covered, and some policies won’t cover fires caused by negligence, such as not maintaining your chimney. Homes in areas with a high risk of wildfires may not be covered for fire damage, either.
