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What Is Hazard Insurance?

Hazard insurance protects properties against specific perils that may cause damage or destruction, such as fire, lightning, windstorms, hail, vandalism, and theft. It allows homeowners to recover their financial losses after an unforeseen event. 

Homeowners insurance policies typically include hazard insurance. Rather than being a separate policy, it is a part of home insurance coverage. A homeowners insurance policy includes hazard insurance, liability, and personal property coverage. You will have a deductible for hazard insurance, which is the amount you pay for a claim before the homeowner’s insurance company pays their part.

How Does Hazard Insurance Work? 

The purpose of hazard insurance within a homeowners policy is to provide financial protection against specific perils that can damage your home. There are a few different instances where this coverage is beneficial. 

Homeowner’s insurance covers the house’s main structure, including walls, roofs, foundations, and appliances. If you experience a covered peril, such as fire, dwelling coverage will pay to repair or replace your home.

Hazard insurance will also pay to repair or replace other structures, like a shed or garage on your premises. The key is that it must be damaged due to a covered peril. Your personal belongings like furniture, appliances, and electronics would also be covered.

Eligibility 

Typically, hazard insurance is only available to property owners and renters. Renters can secure renter’s insurance, which includes hazard coverage for their personal property. Insurers consider location, property value, and past claims history to determine eligibility and premiums.

Coverage 

Renters and homeowners insurance includes hazard insurance, which protects against unforeseen events that damage property. There are a number of perils that are commonly covered, including:

  • Fire, including wildfires and accidental fires
  • Windstorms, such as hurricanes and tornadoes
  • Hailstorms
  • Lightning, including coverage for structural and electrical damage
  • Explosions
  • Vandalism or intentional property damage from others
  • Theft
  • Riots or civil commotion
  • Smoke
  • Falling objects, such as trees or debris
  • Vehicles running into your home

What’s Not Covered? 

In order to protect against many property-related risks, hazard insurance is crucial. However, it’s important to understand its exclusions. In general, hazard insurance does not cover:

  • Earthquakes: You can purchase a separate policy for this.
  • Flood: You can purchase a policy through the National Flood Insurance Program.
  • Sewer backup: You can typically add this additional coverage to your policy.
  • Wear and tear: It’s up to you to keep up with your home’s maintenance.
  • War or nuclear events: War is typically excluded from all policies.
  • Intention acts by you: This policy does not cover intentional damage to your home.
  • Business-related losses: A home-based business needs its own insurance.

After understanding these exclusions, you can determine if additional insurance coverage is needed to protect your home against perils.

How Much Does Hazard Insurance Cost? 

Hazard insurance makes up a good portion of your homeowners insurance policy, which costs between $1,200-$1,800 annually on average. These costs, however, can vary widely based on many factors. Generally, this policy includes a deductible and premiums based on factors such as:

  • Location: It can be more expensive to insure areas prone to certain hazards, such as hurricanes or wildfires.
  • Property value: Properties with a higher value typically have a higher premium.
  • Deductible: A higher deductible lowers premiums but increases out-of-pocket expenses at claim time.
  • Construction materials: Materials play a role in determining the cost of a project, and inflation can impact this. 
  • Claims history: If you have had claims in the past, the frequency and severity could impact your premium.
  • Coverage limits: Higher coverage limits result in higher premiums.

For example, if your home is insured for $300,000 and you have $50,000 in fire damage repairs, after a $1,000 deductible, the insurer pays out $49,000 to cover the loss. Your total cost is the $1,000 deductible plus your monthly premiums. 

Should You Get Hazard Insurance? 

Only some people need hazard insurance, but you may want to consider purchasing a policy if you own or rent a property. 

Consider Getting Hazard Insurance If… 

  • You own a home and want to protect your investment.
  • You have a mortgage, and the lender is requiring hazard insurance.
  • You have valuable personal property that you want to protect.
  • You want to be protected from the financial loss of having to do property repairs from damage due to covered perils.
  • You know you will need help making repairs after a covered event.

Advantages 

  • Financial protection: Hazard insurance provides protection against unexpected loss or damage to property.
  • Range of coverage: It typically covers a wide range of hazards, including fire, storms, theft, and vandalism.
  • Lender requirement: Mortgage lenders often require hazard insurance to protect their investment, making it an essential part of homeownership.
  • Affordable: Considering the cost of repairing or replacing a home, hazard insurance can be more affordable than having no insurance. 

Drawbacks 

  • Cost: Depending on where you live and the value of your home, hazard insurance can be expensive.
  • Limited coverage: Some perils are excluded, such as floods and earthquakes, so if you live in an area prone to these events, you will need separate coverage.
  • Deductibles: You will have another out-of-pocket expense in addition to premiums if you have a claim.
  • Premium increases: Catastrophic events can have an impact on premiums, and if you have several claims this can cause a premium increase.

How to Get Hazard Insurance 

Obtaining hazard insurance will be part of your property ownership or rental journey. Take these steps to get it:

  1. Research your options. Check around for different policies in your area, and research the insurance companies.
  2. Assess your needs. Determine your coverage needs, including the replacement cost of your home and belongings.
  3. Get quotes. Reach out to the insurers and request quotes. Be sure to get multiple quotes to compare coverage, exclusions, and pricing.
  4. Choose a policy. Determine which quote best suits your needs and fits your budget.
  5. Apply and purchase. Submit your application and pay the first month’s premium, or annual if you like, to get your coverage started.

Hazard Home Insurance vs. Catastrophe Insurance 

Both hazard insurance and catastrophe insurance protect against property damage, but they are different.

Both types of insurance cover property damage caused by unforeseen events. The policies cover specific disasters like earthquakes, fires, and storms and are usually peril-specific. Premiums for both policies depend on location, property value, and deductible choices.

A hazard insurance policy covers a variety of common perils, while catastrophe insurance covers extreme events like hurricanes, earthquakes, and floods. Due to the magnitude of covered events, catastrophe insurance often has higher deductibles. For homeowners, hazard insurance is essential, while catastrophe insurance is essential in high-risk areas.

Location and risk exposure determine which to choose. In disaster-prone areas, both policies may be required.

All in All 

A hazard policy protects a property owner from damage caused by fires, severe storms, hail, sleet, or other natural causes. As the property owner, you will receive compensation for any damages incurred if the policy covers the specific event. Your personal belongings are also covered, so renters benefit from hazard insurance. Remember to check all of the exclusions and read your policy carefully upon purchase.

Frequently Asked Questions 

Yes, every homeowner’s insurance policy will have additional coverages available you can add, such as water backup from sewers and drains. Check with your insurer to see what options they have.

Yes, hazard insurance covers your personal belongings inside the property, such as furniture and clothing.

Most natural disasters, like floods and earthquakes, are excluded and can be insured on a separate policy. 

There are several ways to avoid hazards. Make sure you perform regular maintenance, periodically check that your roof is damage-free, trim trees and shrubs, and ensure all appliances are in good working order.

Some states and insurers will consider your credit score when determining your hazard insurance premium. A higher credit score may lead to a lower premium.