Home Insurance

What Is Hazard Insurance?

Fires, winds, and theft are included in a standard homeowners insurance policy’s hazard insurance coverage. Learn more about this and how catastrophe insurance can cover other events that are usually excluded from hazard coverage.

What Is Hazard Insurance

Hazard insurance provides coverage for homeowners against both common and uncommon hazards, also called perils, which may cause damage to dwellings or result in monetary loss. The scope of this insurance coverage includes perils, which may vary from company to company, such as theft or vandalism along with events such as fire, water damage, or power surges.

Coverage for homeowners may be provided in two ways. The first is as part of standard home insurance coverages, such as dwelling and additional structures protection. The second is a stand-alone policy specifically designed to address specific catastrophes, which is known as catastrophe insurance. 

Hazard Home Insurance Coverage vs. Catastrophe Insurance

While the terms “hazard insurance” and “catastrophe insurance” are often used interchangeably, they’re not exactly the same thing. Hazard insurance refers to insurance within your existing homeowners policy that provides coverage for both common and less-common hazards.

The hazards covered by the policy will be listed within the policy, and includes fire, lightning, and falling objects, like if a tree falls onto your home’s roof. Catastrophe insurance, on the other hand, serves the same function, but it covers catastrophic events that are usually a direct result of natural disasters like flood, earth quakes, and landslides. It is usually stand-alone policy, but you may be able to add on as an endorsement to your existing home insurance. 

Hazard insurance within a standard home insurance policy is required to obtain a mortgage because lenders have a material interest in your property. After a major hazard occurs, your lender would be left with an asset that may sell at a loss or no asset at all if the structure is totaled or damaged beyond reasonable repair. Hazard insurance provides a measure of protection for both lenders and homeowners, as it allows lenders to reduce their total risk while homeowners are able to address damage caused by hazards without breaking the bank.

As a stand-alone policy, catastrophe insurance operates separately from standard home insurance. This type of insurance is typically optional, but depending on the location of your home and the risk of specific perils, catastrophe insurance may be requested by lenders. For example, if your home is located in a high flood risk area, your lender may ask for proof of catastrophe flood insurance with enough coverage to address major flooding incidents if they occur.

What Does Hazard Insurance for the Home Cover?

Hazard insurance for your home covers a broad array of perils and is part of your standard home insurance coverage. Common perils covered include:

  • Fire
  • Lightning
  • Hail
  • Theft
  • Smoke
  • Aircraft
  • Vehicles
  • Falling objects
  • The weight of ice or snow
  • Accidental damage due to short-circuiting
  • Accidental water overflow from household appliances

In practice, this means that if a fire occurs within your home and causes damage, it’s typically covered by your hazard insurance. The same applies to damage from vehicles or from the weight of ice or snow on your roof. For example, if a car crashes into your home or large amounts of snow cause part of your roof to cave in, those damages are typically covered by hazard insurance in your homeowners insurance policy.

What Doesn’t Hazard Insurance for the Home Cover?

There are several perils not covered by hazard insurance, such as injuries on your property, theft, and some natural disasters. For example, if someone falls and breaks their arm because of ice on your driveway, the hazard portion of your insurance doesn’t apply. However, it may be covered in the liability portion of your policy.

In addition, damage from mold, earthquake events, or flooding unrelated to appliance failure typically falls outside the scope of hazard insurance and standard homeowners insurance. Instead, coverage for these perils can be purchased through a specialized policy. 

Depending on where you live, certain perils may also be excluded from standard hazard coverage under your homeowners insurance. For example, in coastal areas where windstorms are common, coverage for wind-based damage may be excluded from your homeowners insurance. This means that homeowners in those areas who want coverage for wind damage or if their lender requires it as part of their mortgage can opt for catastrophe insurance to provide that coverage. 

How Does Hazard Insurance Work?

Hazard insurance falls under the broader category of homeowners insurance, which includes 6 common coverage types:

  • Coverage A, or Dwelling Insurance: Dwelling insurance covers damage to the structure of your home and attached structures, such as garages and porches.
  • Coverage B, or Other Structures: Other structures insurance covers detached structures, such as sheds, fencing, or detached garages. 
  • Coverage C, or Personal Property Protection: Personal property protection insurance covers personalitems, such as appliances, furniture, and other items that belong to your family.
  • Coverage D, or Additional Living Expense: Additional living expenses insurance provides coverage for living expenses, such as payment for rent or a hotel, up to a specific limit if your house cannot be occupied due to covered peril or loss.
  • Coverage E, or Personal Liability Insurance: Personal liability insurance covers accidents to others on your property, such as injuries that occur inside or outside your home.
  • Coverage F, or Medical Payments: Medical payments insurance covers medical expenses for someone injured on your property or accidentally injured by a member of your family. 

Hazard insurance specifically applies to coverages A through C, each of which deals with different aspects of home and property protection. This means that if a peril is covered for coverage A, it will also be covered for coverages B and C. For example, if a tree falls on your home and it is considered a covered loss, it would be covered for your house as well as your other structures and personal property.

This also means the same processes around deductibles, claims, and payouts apply: In the event of a hazard that causes damage to your home, you contact your insurance company and file a claim. Depending on the details of your insurance policy, you may need to pay a deductible before your insurance company covers the difference. Coverage maximums also apply, meaning there is an upper limit of what your insurer would pay for each incident. Your policy may also have an annual maximum.

For example, a fire may cause $5,000 worth of damage in your home, which is covered by your hazard insurance. After calling your insurance company and filing a claim, your insurer will likely ask for evidence of the damage through documentation like photos and descriptions, and also send an assessor to determine the extent of the damage.

Then, your policy details would affect what happens next. As an example, your policy may have:

  • Deductible: $500
  • Per-incident maximum: $10,000

In the case of the $5,000 claim for fire damages, you would then pay your $500 deductible and the insurance company would cover the remaining $4,500.

However, if the hazard resulted in $20,000 of damage, you would still pay your $500 deductible but the remaining $19,500 would exceed your policy’s per-incident maximum. In this case, your policy would pay up to $10,000 of the remaining cost, leaving you to pay the remaining $9,500 out of pocket.

Note that repeated hazard claims may increase the cost of your monthly home insurance premium.

How Much Hazard Coverage Do You Need?

Hazard coverage is included in your home insurance policy. However, the amount of coverage you have — and how much you pay for it — varies depending on your location and the average cost of insurance in your area. If you live in an area prone to wildfires, for example, your total cost for hazard insurance may be higher than somewhere with lower risk. 

While hazard insurance falls under your standard home insurance policy, it’s possible to expand your coverage if you’re concerned about specific perils. For example, your coverage for damage to other structures might have a limit of $20,000 per covered loss. If this limit is reached, you’re responsible for any further payments. You can choose to extend the coverage to $30,000 or $40,000, but expect to pay an additional monthly premium cost.

It is possible to lessen this premium increase by increasing your deductible too, which shows insurers that you are willing to pay more of each potential claim before they are expected to step in. It might also be worth considering a separate catastrophe insurance policy if you live in an area that is prone to specific disasters.

What Does Catastrophe Insurance for the Home Cover?

Catastrophe insurance for the home covers more catastrophic and specific events than hazard insurance. Unlike hazard insurance, catastrophe insurance is usually a separate policy with its own premiums, deductibles, and limits. In most cases, catastrophe insurance is optional. However, sometimes you may be able to add some catastrophic coverage to your standard homeowners policy. For example, some insurance companies offer endorsements for earthquakes that can be added to your homeowners policy, but it will have an additional premium and separate deductible.

Catastrophe insurance may include coverage for:

  • Floods
  • Earthquakes
  • Wildfires
  • Riots
  • Hurricanes
  • Tornados
  • Terrorist Attacks
  • Monsoons
  • Mudslides
  • Sinkholes

These events occur less frequently than those covered under hazard insurance — such as damage from fire, vehicles, or falling objects — and are also significantly more expensive to remediate. These events usually also affect a large amount of people at one time.

Consider a fully flooded basement. Here, the total cost of repair could easily exceed $100,000 and falls outside the scope of standard home insurance. Depending on where you live, the risk of a fully flooded basement could be high, such as if you live in a flood plain or next to a river that frequently breaks its banks in heavy rainfall. Catastrophe insurance provides a way to cover these types of specific perils in your area. For example, while mudslide coverage would not make much sense for homeowners living in Phoenix, it could be a worthwhile coverage to have for homeowners in the Puget Sound area of Washington State, where landslides are common.

In some cases, catastrophe insurance may even be required before lenders approve your mortgage. One common example is floodplains. If your home is located in an area that frequently floods, your lender may request that you purchase catastrophe insurance with a flood rider. 

What Doesn’t Catastrophe Insurance for the Home Cover?

Much like hazard insurance, catastrophe insurance doesn’t cover personal belongings or injuries sustained on your property that are unrelated to the catastrophe itself. Depending on the circumstance, catastrophe insurance may work alongside standard homeowners insurance to help provide more comprehensive coverage in the event of a significant event.

How Does Catastrophe Insurance Work?

Catastrophe insurance may be purchased as a separate policy through a specialized provider or as an attachment to your current homeowners insurance policy through the use of riders or endorsements. Which route makes more sense for you depends on your circumstances and finances. For example, while adding a rider to your current policy may be more cost-effective when it comes to premiums and deductibles, separate policies may have higher limits for coverage in the event that your home is severely damaged.

If you need to file a claim, the first step is to contact your insurance provider and give them your current insurance information, along with a description of the catastrophe and the estimated damage. Your provider might request photos along with statements from first responders if they attended your home to deal with fires, floods, or injuries. They may also send out an agent to conduct an investigation, determine the extent of the damage, and assess the total cost of the damages.

Catastrophe insurance may interact with your standard homeowners insurance policy. For example, if your home is damaged during a riot and rioters take some of your belongings, your catastrophe policy would cover the damage to your home, while your standard home policy would cover the stolen items under its personal property coverage. Although the two events happened at the same time, they’re covered under different policies. 

Timing is also important in catastrophe insurance. If you live in a state prone to earthquakes but that doesn’t require earthquake insurance, you could choose to wait and see what happens rather than purchasing catastrophe insurance when you move into your home. If an earthquake occurs and your home is damaged, the purchase of catastrophe insurance after the fact may not cover the damage caused before your policy came into force, meaning it may not apply until the next earthquake.

How Much Catastrophe Insurance Coverage Do You Need?

The amount of catastrophe coverage you need is related to the average costs of disasters in your area. Floods are extremely costly since they cause both immediate and long-lasting damage to homes, while incidents such as damage through looting or rioting are often less expensive overall. As a result, the amount of coverage you need depends on where your home is located and which risks are more likely in your area.

How Much Does Catastrophe Insurance Cost?

The cost of catastrophe insurance depends on several factors, including the likelihood of a specific peril happening in your area, along with the cost to remediate the damage caused by this peril. States with higher costs of living — and in turn, higher costs for the materials and labor required to fix damage to your home — come with higher costs for catastrophe insurance.

Both hazard insurance and catastrophe insurance offer benefits for homeowners. Depending on the location of your home, the likely perils you may encounter, and the expectations of your lender, you may opt for hazard insurance alone or incorporate additional catastrophe coverage.