If you’re in the market for a new home, you probably know you’ll need some kind of homeowners insurance policy before being approved by your mortgage lender. Homeowners insurance is often seen as a necessary evil – paying fees each pay period just in case your home is damaged seems needless.
However, when tragedy strikes, having a good homeowners insurance policy helps you rebuild and move forward in a timely manner. One crucial aspect of any homeowners insurance policy is hazard insurance, which keeps you protected financially in the event that your house sustains structural damage.
In this article:
- What is homeowners insurance?
- What is hazard insurance?
- So, Homeowners and hazard insurance – What’s the difference?
- Cost of hazard insurance
- Types of coverage
- Named vs. open perils
- Making a homeowners insurance claim
- FAQ
What is homeowners insurance?
On the other hand, your homeowners insurance policy (minus everything hazard insurance covers) includes coverage for replacing personal items, paying resulting medical bills and other liability coverages. It’s important to remember that your homeowners insurance policy is a broad-reaching contract that most often incorporates hazard insurance into the policy.
What is hazard insurance
Hazard insurance covers factors that may contribute to the structure of your home, and it’s generally required by mortgage lenders before approving your home loan. Also referred to as perils, hazards may include damages incurred by fire, wind, water, falling objects, vandalism and more.
Hazard insurance typically applies to instances where the structure of your home is damaged, rather than covering personal items inside the home. Hazard insurance helps cover the costs of repairing or rebuilding the structure of your home.
So, Homeowners and hazard insurance – What’s the difference?
Though it may sound like something completely separate, hazard insurance is typically one component included within a more broad homeowners insurance policy. Though some geographic regions more prone to natural disasters may allow for supplemental hazard insurance options for extra protection, at least some degree of hazard coverage can be found in most homeowners insurance policies.
Cost of hazard insurance
Hazard insurance makes up just a small portion of your homeowners insurance policy. You can expect to pay between .25% and .33% of your home’s purchase price for hazard insurance over a twelve-month period. Higher-end policies cover open perils, while less expensive policies may be limited to 10 or 16 named perils.
Costs also vary depending on the area in which you live, since some regions are more likely to experience certain types of extreme weather and natural disasters.
Types of coverage
Hazard insurance is just one segment of your homeowners insurance policy, but it is nonetheless vital for protecting your home from the costs of structural damage. Though hazard insurance is in no way a substitute for homeowners insurance, it does cover a range of perils that can cause damage to your home itself.
Named vs. Open perils
Between the homeowners insurance and the incorporated hazard insurance, your home is protected from a range of perils. Named perils are those hazards specifically named in your policy, while open perils cover all hazards unless explicitly excluded in your policy. Most homeowners insurance policies give you the option of protection for 10 perils, 16 perils or open perils.
Sixteen of the commonly covered named perils that appear in the hazard subsection of your homeowners insurance policy include:
- Fire or lightning
- Windstorms and hail
- Theft
- Vandalism
- Explosions
- Ice, snow, and sleet
- Falling objects
- Riots or civil unrest
- Smoke
- Damage from aircraft
- Damage from vehicles
- Volcanic eruption
- Accidental water/steam overflow
- Sudden and accidental damage to an appliance
- Sudden and accidental damage from artificially generated electrical current
- Freezing
On the contrary, if your hazard insurance covers open perils, this means that your home is protected from all perils unless a specific peril is excluded in your homeowners insurance policy.
Compare the different types of homeowners insurance policies below and the perils they each cover against.
| Type of Policy | Sub-Policies | Perils Covered | Structural Damage Covered | Personal Property Damage Covered | Protected Against Lawsuits | Costs of Relocation Covered |
|---|---|---|---|---|---|---|
| HO-1 Basic | Hazard | 10 named perils | ✓ | X | X | X |
| HO-2 Broad Form | Hazard + Personal Property | 16 named perils | ✓ | ✓ | X | X |
| HO-3 Special Form | Hazard + Personal Property + Liability + Additional Living Expenses |
Open perils | ✓ | ✓ | ✓ | ✓ |
Making a homeowners insurance claim
In the face of a natural disaster or other structurally-destructive incidents, hazard insurance provides peace of mind you need to know that your home is financially-protected. After the unthinkable occurs, there are a number of steps you should take to ensure that your claim is handled in an appropriate and speedy manner:
- Document the damage through photos and written descriptions:
- Take care of any temporary emergency repairs:
- Contact your insurer:
- Review your policy:
- Carefully vet potential contractors:
Do this immediately after the situation occurs to preserve the evidence of your home’s structural damage
This will prevent further damage from occurring and will be reimbursed by your insurance policy
Keep detailed documentation regarding your communications with your insurance provider.
Be well-versed on exactly what coverages your policy provides
Select a contractor with positive reviews and testimonials. Your insurance carrier won’t want to pay top dollar for repairs, but you can find the best value for your money by shopping around and reading reviews.
Frequently asked questions
What hazards are included with hazard insurance?
Some policies cover 10 perils, while others cover 16, and still, others cover all perils aside from any explicitly excluded in the policy. Specific coverages can vary from region to region, so it’s best to ask your insurance carrier which hazards are covered.
Is hazard insurance legally required?
Though you are not legally required to carry a certain amount of hazard insurance, most mortgage lenders require it as a bare minimum before setting up financing for your new home.
Do I really need hazard insurance?
If you’re interested in protecting the integrity of your home’s structure, then you absolutely do need hazard insurance. You’ll save tons of money and have peace of mind should the unthinkable occur.
Does my homeowners insurance policy already include hazard coverage?
Yes, hazard insurance is a subsection of your homeowners insurance policy. However, there are different levels of hazard insurance, and you can work with your insurer to determine the type of coverage that is most appropriate for your circumstances.
The post Homeowners Insurance vs Hazard appeared first on The Simple Dollar.
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