Do you know the difference between homeowners insurance and hazard insurance?
We understand that it's confusing, but it’s essential to know what your policy covers if you’re a homeowner. The two types of coverage are similar but have some key differences. It's crucial to understand what kind of protection is right for your home before making an insurance purchase.
That way, if something should happen down the road - like damage from a windstorm or hail - you'll be prepared with all the information necessary to file a claim quickly and easily!
Let us help explain the difference to decide which type of coverage is best for your needs.
It's time we dive into the crux of our discussion!
What Is Hazard Insurance?
Hazard insurance protects against losses caused by natural disasters or other events outside your control. The policy is a part of the homeowners package but may be issued as a stand-alone plan too.
It provides coverage for damage to your property's contents and improvements caused by fire, windstorms, hail, lightning, landslides, volcanic eruptions, and explosions.
Hazard insurance is recommended for everyone, especially if you live in an area prone to these types of natural disasters.
What Is Homeowners Insurance?
Homeowners insurance policy protects your home against common perils such as theft, fire, vandalism, and others; it also often includes liability coverage which pays for damages you cause to someone else's property or person. The cost of homeowners insurance depends on where you live, the size of your house, and whether it's situated in a high-risk area or not.
Homeowners insurance should be a staple part of everyone's household budget. Even if you don't own your home, renters can benefit from having their belongings protected by this type of insurance policy.
Every homeowner should purchase homeowners insurance. This insurance is the most basic and primary type of coverage that all homes should have.
Things like theft & fire are often overlooked by people when it comes to insuring their homes. But throughout the world, these things happen daily, and without proper insurance, you could be putting yourself in a bad situation if something happens to your home or belongings inside.
Is Homeowners Insurance The Same As Hazard Insurance?
Hazard insurance and homeowners insurance coverage are similar but have some key differences.
Hazard insurance cover is generally a part of homeowners insurance and only covers structural damages caused by natural disasters.
Homeowners insurance policy may or may not include hazard insurance as part of its package; if it offers such protection, the type and amount of coverage will vary by policy. The two types of policies also differ in price. The cost will depend on where you live and how risky it is to live there (for example, living in a city with high crime rates or an area susceptible to hurricanes will result in higher premiums).
It's time to compare hazard and homeowners insurance based on their types, coverage, and cost.
Hazard VS Homeowners Insurance - Coverage
What Is Covered By My Hazard Insurance?
Hazard insurance covers damage to your property caused by specific natural disasters or perils.
It may include coverage for fire, hurricane, windstorm, hail, damages due to weather changes, water damage from burst pipes, or natural disasters like floods.
Whenever you purchase hazard insurance, remember to check the exclusions to avoid any complications down the line.
The usual exclusions you can expect from hazard coverage include losses caused by floods and earthquakes.
It is crucial to know the exclusions under hazard insurance as customers seeking assistance misunderstand insurance companies. The problem is mainly due to ignorance on the customer's part, which causes them to take actions against policies they deem unsavory or risky.
What Is Covered By My Homeowners Insurance?
All your physical belongings are covered to a certain extent under this plan. It includes things like clothes, furniture, appliances, and electronics.
Dwelling coverage is a term used to describe a person's home or real estate, also known as the land on which the house is built.
Medical Payments Coverage
Medical payments coverage protects you and your family in the event of an accident. This coverage can be helpful if someone is injured on your property by accident.
Loss Of Use
The money that is needed while you have no home because of damages. This insurance includes staying in hotels, staying with family members, or renting another place somewhere else until you can repair your house.
If someone visits you and gets hurt on your property, this insurance plan will cover their medical bills. The final part of this insurance is if you are found responsible for something bad happening to someone else's property, like burning down their house or damaging their car.
NOTE: Not all homeowners insurance will cover everything above.
Hazard VS Homeowners Insurance - Types
HO-1 (Basic Form)
HO-1 is a basic insurance that covers named perils*. It is not widely used at the moment and provides coverage for an owner-occupied individual home.
The perils covered in HO-1 insurance:
HO-2 (Broad Form)
The broad form policy is usually more popular than an HO-1 and significantly improves the basic form policy. The dwelling (your house) is protected for its replacement value under HO-2. Personal possessions are also covered at their real cash value. It also protects your home and personal belongings. Apart from the named perils* covered in HO-1s, HO-2s additionally cover:
HO-3 (Special Form)
One of the most popular homeowners insurance policies in the market is an HO-3 policy. The distinction between an HO-3 and policies with less coverage, such as the HO-1 and HO-2 plans, is that your home will be insured for all perils unless they are expressly excluded.
The HO-3 coverage, like the HO-1 and 2, covers all risks of direct physical loss to the home itself. The policy also covers your personal belongings at replacement costs, similar to an HO-2 policy.
HO-3 insurance does not cover flood damage or earthquake damage (typically, you should purchase a separate policy for this type of damage). The HO-3 also does not cover you for loss of use, which is the lost rental value of your home due to a covered accident.
If your fire causes damage to an adjoining apartment or house, the HO-3 will cover this loss up to the limit of liability stated on your policy. This coverage is called "extended replacement cost."
Personal belongings may be covered only on a named perils* basis with an HO-3.
Here's a list of standard exclusions:
HO-4 (Renters Insurance)
Renters insurance, also known as HO-4 insurance, is a form of property coverage. It may also cover your personal liability and short-term living expenses if your home becomes unlivable. In a nutshell, HO-4 insurance is similar to a safety net for your belongings.
If you rent, you should consider adding HO-4 insurance to your current renter's policy if:
HO-4 renters insurance provides coverage in the following circumstances:
HO-5 (Comprehensive Form)
As the name suggests, this is the most comprehensive homeowners insurance plan. In a simple explanation, HO-5 is HO-3 with a few more advantages.
By default, the house and personal property are insured for their replacement value with HO-5s. In the case of most HO-3 plans, you must add replacement cost coverage. It also provides higher coverage limits for expensive things like jewelry and electronics, which generally have strict coverage limits.
HO-6 (Unit owners Form)
Condo insurance is a sort of property and liability insurance. Condo insurance also covers you from loss of personal belongings due to theft, fire, and other related accidents.
Condo insurance includes
HO-7 (Mobile Home Form)
A homeowners insurance policy that covers single-wide, double-wide, and triple-wide mobile homes on open peril* basis is known as an HO7 policy. It is also known as manufactured house insurance. It covers everything in HO-3 homeowners insurance.
An HO7 policy covers the following:
HO-8 (Modified Coverage Form)
The insured's house, personal property, liability, and loss of use are all covered under an HO-8 insurance policy. This insurance plan will not go as far as an HO-3 or HO-5 coverage in protecting your home and personal belongings. An HO-8, at the very least, will give comprehensive key coverages against the most prevalent hazards.
HO-8s are named perils*. Reimbursement is based on the home's actual cash value and not the replacement value. The plan also covers you from minor shortcomings like wind damage, falling objects, and riots.
There are no specific types of hazard insurance though, for certain natural events like floods, you'll need to insure separately. Flood insurance comes under 'catastrophe insurance.’
Catastrophe insurance is generally challenging to get because it can go up in price very quickly. It is recommended that you buy this kind of coverage only if your area is prone to such disasters. You can purchase catastrophe insurance from private companies or state-backed programs like the Federal Emergency Management Agency (FEMA).
Hazard VS Homeowners Insurance - Cost
How Much Does Hazard Insurance Cost?
Hazard insurance can cost as little as $300 a year or over $1,000. It varies greatly depending on the location and the risk of natural disasters hitting the place.
Factors affecting hazard insurance rates:
How Much Does Homeowners Insurance Cost?
The cost of homeowners insurance depends mainly on the area you live in, the age and construction of your home, what you have in it (furniture, electronics), and how much coverage you choose.
It is not uncommon to pay hundreds of dollars annually for residential homeowner's insurance.
Here's a re-listing of the factors that go into determining how much you will have to pay:
The national average is $900 - 1,300 per year for an owner-occupied home ranging anywhere from 1,500 square feet to 4,000 square feet in size. This can fluctuate by as much as several hundred dollars in different areas of the country.
How Does Hazard/Homeowners Insurance Work?
You have to decide whether or not you want to file a claim with your hazard insurance when something bad happens to your home or property. You file a claim, and the insurance company reimburses you for your stuff, but only to a certain extent.
You can choose different levels of protection for your home under this plan. You decide on how much coverage you want to pay for things like personal property or dwelling. Then you decide how much money you want to pay if something happens to your stuff, like if it gets stolen or is damaged.
You also have the option of filing a claim by phone, mail, or online for your coverage. The insurance company will send out an appraiser to assess the damages and give you an estimate for how much money they need to fix it.
A final thing that you can do is purchase more coverage for your things if the claim above changes your mind about what you want.
Hazard Insurance And Mortgages
When you buy a home, your mortgage lenders require that you have coverage for the house equal to its market value. You may also need separate policies for personal property and liability if certain events occur. Sometimes, mortgage lenders also ask for supplemental hazard insurance.
You'll want to check with an insurance agent/agency to find out precisely what the mortgage company requires to secure your loan. The following are some guidelines you can use when looking for a hazard insurance policy.
Your insurance provider will assess how much coverage the home needs based on its replacement value, which is what it would take to rebuild your house or other property in case of damage or destruction. The cost of repairs also factors into the coverage decision, as do discounts offered by specific companies.
Your insurance agency will also ask you whether or not you want full replacement coverage. You can choose options that cover less, but they are usually more expensive. This is the option where the insurance companies would replace your belongings with new versions rather than giving you cash to do so yourself.
The choice between these two options requires a detailed inspection of your house, or what is called a home inventory. You should start putting one together now, even if you don't have insurance coverage yet. Make an inventory of all the items in your home and take high-quality photos or videos of them. Store the list and images in a safe place, along with any receipts for expensive items.
You'll also want to check with your mortgage lender to see if they have a requirement about liability insurance. This type of policy covers medical bills and other financial responsibilities you may take on as a homeowner.
If you find out that your lender wants liability coverage, ask them if they require that it be included in the home's insurance amount. You'll pay less each month if both are part of one comprehensive plan, rather than having to buy them separately.
Homeowners may also want to purchase various types of endorsements with their policies. An approval will expand the types of coverage that you have or guarantee a certain amount to repair damages.
Is Hazard Insurance Deductible?
Hazard insurance is not tax-deductible* for homeowners, whereas it is tax-deductible when the property is used as a rental.
It is also deductible if you use the home for business purposes. It's a good idea to check with an accountant and the tax code of your country or state to get more information about this deduction.
Is Hazard Insurance The Same As PMI?
Hazard insurance and private mortgage insurance (PMI) are not the same. Lenders require PMI to protect themselves from losses, whereas hazard insurance protects your home from natural disasters.
PMI protects the lender or lending services if you make a late payment, don’t pay at all, or your home is worth less than the balance on your mortgage. A PMI policy kicks in to cover that difference. However, once you get to 80% loan-to-value (LTV), usually after about five years of payments, the mortgage lender ends the coverage automatically.
What Is Hazard Escrow?
When you buy a home, your lender will require you to purchase hazard insurance. In addition, the lender will ask for an escrow payment – a combined payment towards hazard insurance and property taxes. The sum of these charges is often paid as a single monthly bill from your lender to the insurer. For example, the lender may forward the total amount of the payment to the insurance company on your behalf.
The insurance payment is deducted from your escrow account. The lender then forwards property tax payments to the appropriate government authority on your behalf. The balance in your escrow account at the end of the year is returned to you, but if there's a shortfall between what was paid and what was due, you are liable for it.
See the most asked questions
Yes. All lenders require hazard insurance. You cannot purchase a new home without coverage.
In most cases, you will pay a one-time policy fee and a monthly premium. The amount of your premium depends on the type of property you own (house vs. mobile home) and the coverage limits you choose for dwelling/contents.
No. Dwelling provides protection for your home’s structure, whereas contents cover items inside your house such as furniture and appliances. However, there is one exception: earthquake insurance, which protects both the structure of your home and its contents.
If you are looking for homeowners insurance, there is a lot to consider since the difference between hazard insurance and homeowners insurance might not be easy to comprehend. You may want to ask yourself the following questions:
These questions should help you narrow down your search so that you find the right policy before disaster strikes.
Hazard insurance should not be your only home insurance policy. Having this coverage does not mean that you are protected from a wide variety of hazards, such as floods and earthquakes. Only a homeowners insurance policy will fill the gaps left by hazard insurance.
Homeowners insurance is more comprehensive than hazard insurance, and I would recommend looking into it.
Finally, if you’re looking for even more coverage in future years, you could also look into life insurance and ensure that you are protected from anything that could arise. However, that is a topic that we’ll cover another day.