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Guide To Hazard Insurance For Homeowners

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Published on July 7, 2021
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If you’re relatively new to the world of homeownership, you may have come across a few terms that you don’t quite understand. Moreover, you may have encountered concepts that sound similar but that actually serve completely different purposes.

One confusing topic of discussion is insurance. What exactly is hazard insurance, and how is it different from homeowners insurance?

Hazard insurance is part of most standard home insurance policies and protects you from financial strain if your home is damaged by a covered natural disaster or incident.

The goal of hazard and homeowners insurance is to make sure that your house and belongings are covered in the event of an incident, whether it’s a kitchen fire that causes smoke damage or a forest fire that burns your home down.

Let’s take a closer look at hazard insurance and how you can make sure you’re getting the right insurance policy to cover you in an emergency.

What Is Home Hazard Insurance?

Hazard insurance covers the damage caused by a natural disaster. While it seems like a supplemental insurance policy, it’s actually part of your standard homeowners insurance coverage. It typically only covers the actual structure of your home, not any of your personal items inside the house.

Any damage done to your personal property should be covered by other components of your home insurance policy. Keep in mind that every policy is different, so you’ll want to speak with your insurance agent about your coverage and coverage limits.

What Does Hazard Insurance Cover?

Most hazard insurance policies cover damages caused by the following common types of perils:

  • Hurricanes
  • Tornadoes
  • Hail
  • Smoke
  • Snowstorms
  • Ice and sleet
  • Falling debris
  • Vehicles, including cars and aircraft

To recap, if an out-of-control vehicle or tornado damages your home, the hazard insurance policy would pay for the cost to repair or rebuild your home. However, if a fire blazed through your bedroom and you were left with only the clothes on your back, the hazard insurance would not be enough to cover the replacement costs of your clothes and personal effects.

That’s where other components of your homeowners insurance policy take over.

What About Floods?

Unfortunately, hazard insurance does not include flood coverage. Depending on your flood risk, your mortgage lender may require you to get flood insurance. The Federal Emergency Management Agency (FEMA) offers a Flood Map Service Center tool that allows you to find out if an address is in a FEMA-designated flood zone.

Hazard Insurance Vs Homeowners Insurance: Key Differences

Homeowners insurance protects you financially from various types of damage, as specified in your policy, as well as theft, if you have contents coverage. It also covers medical bills if someone is injured at your house and any legal costs if they decide to sue you, in addition to damage caused by:

  • Fire
  • Windstorms
  • Hail
  • Lightning
  • Vandalism

An insurance agent will typically offer a homeowners policy designed to cover the cost of your personal property, liability and other basic coverage, as well as the most common hazards that homeowners face.

However, some mortgage lenders require that you have supplemental hazard insurance based on where you live. For example, if you live in an area where earthquakes are common, your lender may require you to have earthquake insurance in addition to your standard homeowners policy.

If you live in an area prone to flooding or located near a major waterway, they may require you to have flood insurance. If you’re worried about certain risks or need a specific type of supplemental policy to fulfill your mortgage hazard insurance requirements, speak with your insurance agent.

How Much Is Hazard Insurance?

There are several factors that go into determining the monthly premium for hazard insurance. The more your home is worth and the older it is, the higher the cost of the insurance. If your home is in a flood zone, or an area that regularly experiences a fire or hurricane season, the cost of hazard insurance may be significantly cheaper than the cost of catastrophic coverage.

Deductibles also influence the amount homeowners pay in monthly premiums for their hazard insurance. Lower deductibles mean that you’ll pay less out of pocket in the event of a hazard-related crisis, but that often comes at the cost of a higher monthly premium. Any additional coverage you opt for, which includes raising the limits of your coverage, will result in higher overall insurance costs.

What’s Hazard Escrow?

The term “escrow” refers to an account used to pay real estate taxes, mortgage insurance (if applicable) and homeowners insurance that is split into monthly installments and included in a client’s mortgage payments along with principal and interest.

Mortgage lenders may automatically add an escrow account to their policies or give clients the option to use an escrow account.

The advantage of an escrow account is that your home insurance premium payments are split by 12 across the span of 12 months, potentially making it easier for you to afford the comprehensive coverage you need to protect your home. The amount is calculated on a yearly basis according to the actual amount of the insurance premiums. Since the premiums fluctuate, the amount has to be recalculated every year.

Hazard Insurance FAQs

Below, we answer some of the most frequently asked questions about hazard insurance.

Do you have to have hazard insurance and homeowners insurance?

Virtually every mortgage lender requires you to have homeowners insurance that offers protection against the most common hazards. Depending on the risk factors associated with the particular home, you may be required to purchase additional hazard insurance as well. Your mortgage lender should make it clear if hazard insurance is required and how your insurance quote will change.

Why would hazard insurance go up?

Insurance rates regularly increase to keep up with inflation in order to cover the cost of repairing your home. Your rates may also go up after an insurance inspection that may determine your home needs upgrades. If your neighborhood has felt the effects of climate change-driven storms and fires, your hazard insurance premiums may increase to cover the rising costs of repair.

What does hazard insurance not cover?

Generally speaking, hazard insurance will cover the structures on your property and the personal property within it if natural disaster strikes. Most will not cover floods or earthquakes. So, if the earth shifts beneath your home, which causes a burst pipe and minor flooding, hazard or flood insurance will not cover it.

The Bottom Line: Which Insurance Coverage Is Right for You?

Before you buy a house, make sure you find an insurance company you trust and feel comfortable with, so you know you’re getting the right hazard insurance policy to cover you in an emergency. Finding the best level of coverage to protect your assets is equally important. Make sure you consider the size of your deductible, the risk of certain hazards in your area and choose a premium amount that accommodates your personal budget.

Not sure what costs beyond hazard insurance that you should anticipate as a homeowner? Check out our guide to the full cost of homeownership.

Miranda Crace

The Quicken Loans blog is here to bring you all you need to know about buying, selling and making the most of your home. Whether you’re thinking about becoming a homeowner, selling your current home or looking to keep your place in tip-top shape, our writers and freelancers bring their experience and expertise to meet you right where you are.