Buying any type of insurance can be overwhelming, especially if you aren’t sure what each policy means or where you need to start searching.

When you are searching for homeowners insurance for the first time it may make trying to understand all these insurance terms a bit confusing. What is hazard insurance? Do you need it for home insurance? What does it even cover?

If you’ve got a ton of questions, don’t fret. Below are the answers you seek.

Here is everything you’ll need to know about what these insurance types are, what they cover, how they work, and how much they cost.

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Hazard Insurance

Hazard insurance is usually a part of a homeowner’s insurance policy. Its purpose is to protect and provide coverage for the structure of your home.

While it covers most hazards caused by damage through natural disasters, flooding and freezing of household appliances, and theft (in some cases), other coverages such as a home warranty and home insurance will cover other damage to your home and property.

For you to get a home mortgage loan, you will need to have hazard insurance included in your homeowner’s insurance coverage.

What does hazard insurance cover?

Hazard insurance covers a variety of incidences and damage to parts of a home.

Hazards that are usually covered are:

  • Fires
  • Lightning storms
  • Hail and wind
  • Volcanoes
  • Explosions
  • Ice and snow
  • Rioting
  • Flooding due to overflow of water of household appliances
  • Freezing of household appliances, heating, and air conditioning systems
  • Theft and vandalism (in some insurance policies)

One thing that most hazard insurance policies don’t cover is flooding. You can get flooding insurance from the National Flood Insurance Program. Other than that, most damages due to such hazards are covered by the insurance policy.

How does it work?

Hazard insurance provides coverage to repair, rebuild, or replace damage to your home or replace the cost for anyone other than you or your family who gets injured. Medical fees and bills may be covered if someone is hurt on your property.

When your home needs damage coverage, policyholders will need to file a claim with our homeowners insurance company. There are two types of policies that will provide coverage for your home: named perils and open perils.

Policies with named perils specifically name or list the hazards that will be covered, such as a fire, windstorm, lightning, theft, vandalism, or explosions.

The other type of policy, with open perils, provides the perils that are not covered and will provide coverage to damage not caused by the perils listed in this policy.

How much is hazard insurance?

Forbes Advisor has found that the national average home insurance rate is around $1,854 annually.

But like any type of insurance, the cost will vary depending on your situation, your needs, and your preferences.

Some factors that go into determining the cost of hazard insurance premiums are the type of homeowners insurance you will purchase (since hazard insurance is a part of a home insurance), the size and condition of your home, your claims history, and your location.

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Home Insurance

Home insurance policies provide homeowners with protection against damage to their home or property or any type of loss due to natural disasters, theft, or accidents.

There are typically four areas of coverage that your home insurance policy should have: the structure of your home, your personal belongings, liability protection, and additional living expenses. Hazard insurance is responsible specifically for covering the structure of your home.

What does homeowners insurance cover?

Home insurance provides coverage to a home’s internal structure, any personal belongings that are damaged or stolen, personal liability, and living expenses.

There are three levels of coverage included in a home insurance policy: actual cash value, replacement cost, and guaranteed/extended replacement cost.

  • Actual Cash Value: Pays what your property would be worth today by taking its price and subtracting depreciation.
  • Replacement Cost: Insurance pays for the cost to replace or repair your home or possessions.
  • Guaranteed/Extended Replacement Cost: This policy pays whatever it costs to repair or replace damage to your home and is the highest form of a policy type.

What are the types of home insurance?

The most common type of home insurance is an HO-3. This type of policy is the broadest and covers the most “hazards”. The structure of the house, personal belongings, and liability coverage are all a part of the insurance policy.

Other types of home insurance policies include:

  • HO-2: A basic policy that keeps your home covered from 6 additional perils and at its replacement cost. Personal property is typically covered by actual cash value.
  • HO-4: This is usually for renters, and covers the same 16 perils as an HO-3 policy.
  • HO-5: This policy only covers damage due to open perils, which means that you would get coverage for all damage in all types of cases (except for specific exclusions).
  • HO-6: This policy is mostly for anyone living in a condominium and it covers personal property, loss of use, and personal liability.
  • HO-7: This is another type of HO-3 policy, but it’s specifically designed for mobile homes.
  • HO-8: This is a modified form of coverage and is used mostly for homes that don’t meet the standards for other policies. This policy typically includes 10 named perils and provides coverage for all of them.

Many types of home insurance may catch your eye or make your head spin! Choosing the best plan for you will depend on your needs, location, where you live, and your home’s condition.

How much is home insurance?

On average, the cost of homeowners insurance annually is typically $1,680 with annual premiums varying as low as $781 and as high as $3,383.

Figuring out how much home insurance would be for you will depend on several factors.

These factors include:

  • Your location
  • Condition of your home
  • Size of your home
  • Details of our coverage policy
  • Add-ons to your policy (i.e., flood insurance or liability)

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What are the major differences?

You may think that hazard insurance is separate from homeowner’s insurance, but that is not the case. Hazard insurance is a part of homeowners insurance. Both are needed to receive a mortgage loan.

The major differences lie in what they cover.

  • Hazard insurance only provides coverage for whatever perils, or hazards, are named in the policy.
  • Home insurance covers perils plus all other aspects of your home including personal liability, personal belongings, injury on the property, and additional living expenses.
  • Hazard Insurance is specific to covering damage from named and open hazards (disasters, theft, etc.)
  • Home insurance is broader and more general in what it covers.

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The Bottom Line

All of the information mentioned can be a lot to take in! So, we’ve listed the key aspects of what you should know and remember.

Both hazard and homeowners insurance provides coverage for damage to one’s home and in cases where there is an injury on the property. However, hazard insurance is not its own separate policy; it is simply a part of the whole homeowners insurance policy.

Both hazard and home insurance cover damage due to natural disasters, fires, freezing of household appliances, and extreme weather conditions.

The cost for either type of insurance varies on your situation, your home’s size and condition, your claims history, the details of policies, and your location.

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