- Hazard insurance is a component of your homeowners insurance and not a separate policy.
- The hazard section specifically outlines the perils that will—or won’t—be covered for your home.
- Your broader homeowners policy can cover expenses beyond hazards, like medical care or an alternative place to live.
- Protection against earthquakes or floods is not included as a hazard on homeowners policies and generally requires separate coverage.
You may have heard hazard insurance and homeowners insurance referred to in such a way that it makes it seem like they’re the same thing. But they’re not. Hazard insurance is a component of a homeowners policy that specifies what perils, like windstorms or fires, you have coverage for.
“In insurance parlance, the term ‘hazard’ itself refers to any condition that increases the probability of a loss,” says Tim Dodge, assistant vice president of research and information at Big I New York, a group for independent insurance professionals.
It’s easy to understand why there’s some confusion, since protecting homeowners against hazards is a main reason for the insurance. Here’s what to know about the role hazard insurance plays in your homeowners policy.
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Why are hazard insurance and homeowners insurance often confused?
Homeowners policies can be pretty complicated: There’s basic coverage against damage to structures, land and personal property that are affected by storms, winds, burglary, fire and other damaging situations. That’s the hazard component.
Since the hazard section is the specific part that covers any damage to the physical structure of the house or any other buildings on the property, like a detached garage, or to any belongings you have in the house, like furniture and clothing, it’s often seen as the heart of the policy.
So you may well hear your homeowners policy referred to as hazard insurance if you’re closing on a house because that’s the part that’s required by mortgage lenders. But know that hazard insurance usually cannot be purchased separately. You have to have homeowners insurance to get it.
The rest of the homeowners policy addresses other types of expenses, such as for medical care or “loss of use,” you might incur. For instance, if someone was in the house and injured during a hazardous event and needs medical care, your policy can cover that. If the house is not livable while it is being repaired, your policy could pay for you to stay somewhere else. Finally, someone who was a guest at your home during whatever incident damaged it could decide to sue you.
What are the types of hazard coverage available?
As with any insurance, the amount of coverage you obtain is based on how much you are willing to pay. A basic and the least expensive policy, for example, would simply cover damages to the physical structure of your home, but not any personal belongings, for 10 events, like a lightning strike, a tree falling on your house during a windstorm or a car crashing into your house. These are what insurers refer to as “named perils” and they should be listed on your policy.
There are several levels of homeowners insurance, and the ones that offer more coverage, and cost more, cover up to 16 perils, including gas explosions, theft and vandalism.
For an even higher price, you could get comprehensive coverage for almost any type of incident that might damage your home or personal belongings. But even though these are “open peril” policies, they still have exclusions to what’s covered, like mechanical breakdowns, mold, wet and rot, smog, corrosion and rust. Any peril that’s not specifically listed as an exclusion will be covered.
Should I get extended hazard coverage?
The hazard portion of your homeowners policy will pay for repairing and rebuilding your home after damage from hazards that are covered. However, you can get extended coverage that also covers unique circumstances where the repair costs could exceed the amount of protection your standard policy has. An example of the unique circumstances when the extended coverage might kick in would be a widespread catastrophe, like wildfires. In those circumstances, the cost of getting work done will likely be driven up by the increased competition for materials and contractors’ time.
Keep in mind, though, that “the extended coverage will apply only if the home carries an appropriate level of dwelling coverage to begin with,” says Kevin Gahagan, a certified financial planner with San Francisco-based Private Ocean. The extended coverage should be based on the fair market costs for rebuilding the home. “All insurance companies can provide these cost estimates based on the specifics of the home and its location,” he says.
It’s important to consider where you’re buying your home, and what hazards it might experience, to ensure the overall homeowners policy you select will provide adequate coverage.
What’s not covered under the hazard part of my policy?
There are two types of hazards you won’t get coverage for in a standard homeowners policy: earthquakes and floods.
To obtain coverage against these perils, you generally need to purchase separate earthquake insurance or flood insurance. Some insurance companies, however, do offer earthquake coverage, for an additional cost, as an add-on to a homeowners policy.
“In California, insurance companies are required to offer an earthquake policy if they insure a home,” says Gahagan. Mortgage lenders won’t require earthquake coverage. It is up to the homeowners to decide if they want it. If they do not obtain the protection, they will have to cover all the costs of rebuilding their home if it experiences any damages during an earthquake.
Traditionally, the Federal Emergency Management Agency (FEMA) has provided coverage for people who live in flood-prone areas. The maximum protection FEMA flood policies provide, however, is $250,000. As an alternative, you can get private flood insurance.
Typically, most people don’t pay much attention to their insurance coverage until they need it. The rewards, though, will be considerable if you do the advance work to compare the costs of policies and carefully read what will be covered. If an unfortunate event damages your home, your preparation could save you considerable money and reduce the stress associated with dealing with repairs.