What Is Hazard Insurance and What Does It Cover?

Hazard insurance is a type of property insurance designed to protect a home’s physical structure from specific events that could cause damage. It provides financial protection against unforeseen incidents, helping to repair or rebuild the dwelling.

Covered Perils

Hazard insurance typically covers damage from a range of common events, often referred to as perils. These commonly include fire and smoke, which can cause extensive damage. Lightning strikes are also usually covered, protecting against direct damage or fires. Windstorms and hail are standard inclusions, addressing damage to roofs, siding, and windows.

Additional covered perils often extend to explosions, theft, and vandalism. Damage from falling objects, such as trees, or the weight of ice, snow, or sleet on a roof are also typically included. Certain types of water damage, specifically those from sudden and accidental overflows like a burst pipe, are generally covered.

Common Exclusions

While hazard insurance offers broad protection, it does not cover all types of damage. Certain perils are typically excluded from standard policies, often requiring separate insurance. Flooding from external sources, such as heavy rains or overflowing bodies of water, is a common exclusion. Similarly, damage caused by earth movements like earthquakes, landslides, and sinkholes is generally not covered.

Other exclusions frequently include damage resulting from neglect or a lack of maintenance, as insurance is designed for sudden and accidental losses, not gradual deterioration. Issues such as mold or pest infestations, like termites or rodents, are usually excluded because they are often preventable through routine upkeep. Acts of war, nuclear hazards, and government actions like property seizure are also standard exclusions.

Relationship with Homeowners Insurance

“Hazard insurance” is a term frequently used by mortgage lenders to refer to the portion of a homeowners insurance policy that protects the physical structure of the home. It is not typically sold as a standalone policy for most homeowners. Instead, it is a component, often referred to as dwelling coverage, within a comprehensive homeowners insurance policy. This dwelling coverage addresses damage to the house itself and other structures on the property, like a garage or shed.

Mortgage lenders require this specific coverage because it safeguards their financial interest in the property that serves as collateral for the loan. By ensuring the physical structure is protected, lenders mitigate their risk in the event of damage from covered perils. While a homeowners policy provides broader protection, including personal property and liability, the “hazard” aspect is the particular focus for lenders to secure their investment.

Determining Coverage and Costs

The amount of hazard insurance coverage is usually determined by the estimated cost to rebuild the home, known as its replacement cost, rather than its market value. This ensures that in the event of a total loss, there are sufficient funds to reconstruct the property. An insurance company can help estimate this rebuild cost, considering materials and labor.

Several factors influence the premium cost of hazard insurance. The property’s location plays a significant role, with areas prone to natural disasters, higher crime rates, or further from emergency services typically having higher premiums. The home’s characteristics, such as its age, construction materials, and the condition of its roof and major systems, also affect costs. Newer homes built with durable, fire-resistant materials often qualify for lower rates. Additionally, the chosen deductible amount and claims history can impact premiums, with higher deductibles often leading to lower premiums.