When you begin looking at homeowners insurance and the different levels of coverage offered, you may also run into hazard insurance. Hazard insurance is commonly mistaken for homeowners insurance, but they are not the same things.
Hazard insurance is a part of your homeowners insurance policy. It is not its own form of coverage but rather something that's included in your plan. Having this extra level of protection can keep your home, family, and assets safe in a worst-case scenario.
Let's look at key differences between the two types of insurance.
What is hazard insurance?
Hazard insurance is the part of your homeowners insurance policy that covers your home's structure.
The term "hazard insurance" is used mostly by lenders to describe the minimum amount of insurance they require to protect their assets in the event that your home is damaged or destroyed and you still owe money on it.
Here are some examples of damages covered by the hazard insurance portion of your homeowners insurance policy:
Damage caused by fallen trees
Vehicles that damage or run into your home
Civil rioting or unrest
Water damage caused by plumbing issues or appliance failure
Snow, ice, and sleet damage
Hazard insurance protects the structure of your home in most cases. However, it does not protect against flooding. If you live in an area with a high flood rate, you may want to look into an additional coverage option. It also won't protect you against lawsuits due to injury of a guest in your home.
There are two important aspects of homeowners insurance that protect against hazards. These are structural coverage and personal property coverage.
Otherwise known as dwelling protection, this aspect of homeowners insurance protects against hazards that can damage the structure of your home. Whether your home is damaged due to fire, wind, hail, or lightning, structural coverage will activate to protect you and your home.
If you have added structures that you built or purchased, you can also get coverage for these as well. For instance, if you bought or built a shed, built a deck, have a garage, or even added an entire second living space to the back of your home, you can purchase additional coverage to protect these, too.
Personal property coverage
This is the other aspect of homeowners insurance that protects against hazards. Personal property coverage is pretty self-explanatory—it protects your personal property. If hazards occur to your belongings, such as theft or fire damage, this coverage will kick in to either replace or cover the market value of your belongings.
How much hazard insurance do I need?
To calculate how much hazard insurance you need, you need to figure out how much insurance you need for the structural aspect of your home, and the items within. Here are some questions you should ask yourself.
- How much would it cost to rebuild your home and other structures?
You need enough structural insurance to cover hazards that could completely damage your home and require you to rebuild. In other words, you need to have enough coverage to pay for a completely new home, with building fees, materials, construction costs, etc.
You would also need to take into account the market value. Your house may not be what it was worth when you first bought it, so be sure to factor in varying market prices with your calculation.
- How much would it cost to replace items in your home?
Since hazard insurance is also a factor at play in personal property insurance, it's important to add up how much of this you'll need. If a hazard such as fire destroyed your art collection or damaged your jewelry or technology, you'll want to make sure it's covered.
A good way to add up insurance costs for your items is to keep a list of the belongings you want covered and add up how much they are. If your hazard insurance protects your items by replacing them entirely, you shouldn't need to worry too much about costs. However, some policies also offer market value coverage, which means you will get compensated with the current market value of the object.
As market values fluctuate, this can mean you won't get what you paid for the item. It's typically best to go with replacement insurance, even if it means an extra 10% on your premium.
Do I need hazard insurance?
There are no states that require hazard insurance. However, there are some common scenarios where you would need to purchase it.
- If you have a mortgage loan
Your lender or loan holder will likely require you to have a minimum amount of hazard insurance until you pay off your mortgage. This is to protect their assets, but it also protects yours! Your lender can even purchase hazard insurance for you in the case of a lapsed payment, and you will be financially responsible for covering the cost.
- If you want homeowners insurance
Even though hazard insurance is not one and the same with homeowners insurance, they come as a package deal. If you want homeowners insurance, you have to pay for hazard insurance too. Even if you have your home completely paid off, it's always a good idea to be protected. Especially since, for most people, their homes are their biggest assets.
If you don't have homeowners insurance, even smaller damage like hail or structure damage can quickly add up to an overwhelming amount, so having homeowners insurance with hazard protection is a good idea.
What will I pay?
As with any form of insurance, there will be an out-of-pocket deductible paid for any incident or claim and a claim filing fee. A deductible is how much insurance requires you to pay before they provide financial relief. Deductibles are typically $500 or $1000. Most insurances have a filing fee also, which will be unique to your provider.
After this, insurance will cover the rest of your expenses until you reach the policy limit. If your expenses are under the policy limit, you're covered. If they're not, you will need to pay these yourself.
How to save on hazard insurance
As with car insurance or boat insurance, hazard insurance can add up fast. You may have unexpected increases in bills that you didn't see coming, or you may be overpaying for this insurance altogether.
Because the two are so closely associated, the best way to lower your hazard insurance is to lower your homeowners insurance! Here are some of our best tips for lowering your home insurance bill.
- Look for discounts!
Discounts are an easy way to lower your rates without making any major changes. The bundling discount kicks in if you bundle multiple insurances such as home and auto together. Many insurance companies offer discounts for having a monitored alarm system. Over 36 million Americans have security systems in their home, so you may as well get a lower rate for it! You can also look for discounts if you pay your annual premium upfront!
- Shop around!
One of the best ways to make sure you're getting the most affordable coverage and the best coverage for you is simply to shop. Rates can vary significantly between providers, so taking time to explore your options can end up saving you hundreds.
Squeeze can help you get the most out of comparison shopping. We do the hard work so you can focus on what's important!
To recap, hazard insurance and homeowners insurance are not the same thing, but they are closely associated. Homeowners insurance refers to all aspects of coverage that protect your home and you from lawsuits, theft, and damage. Hazard insurance refers to the aspects of homeowners insurance that protects your home and personal property from hazards.
They come as a package deal. If you want to lower the costs of your hazard insurance, find ways to lower the cost of your homeowners insurance!
Having hazard insurance is the best way to protect your home. If you don't have this form of coverage and you encounter damage to your home, expenses can add up fast and be overwhelming. That's why it's vital to find an insurance provider that keeps you covered. Plus, having this insurance lets you focus on keeping your house and home.