Hazard insurance vs. homeowners insurance

Learn about the similarities and differences between hazard insurance and homeowners insurance

Pat Howard 1600

Pat Howard

Published October 3, 2018

When you take out a mortgage on a home, your mortgage company will require you to purchase hazard insurance to protect your home (and their investment) against certain hazards. What they’re referencing are three provisions offered to you in your homeowners insurance policy.

Hazard insurance refers to the specific portion of your homeowners insurance policy that protects your home, your garage or separate structures, and your personal belongings against hazards, or perils, covered in your policy. Your mortgage company’s interest is in making sure that, at the very least, your home and property inside the home have adequate coverage against potential risks like fire, theft, or bad storms.

Homeowners insurance refers to the entire policy and includes hazard insurance but also contains three other provisions, including: additional living expenses coverage if you’re forced to relocate, personal liability coverage if someone is injured in your home and sues, and medical payments coverage if you’re liable to cover an injured guest’s medical expenses.

Read on:

Is hazard insurance the same as homeowners insurance?

Hazard coverage is merely a subsection of your home insurance policy that references the coverage to your home and personal property in the event you suffer a loss by a covered hazard. It doesn’t include liability, loss-of-use, or medical payments to others coverage, which are the three other coverages in a standard policy.

Homeowners insurance

Homeowners insurance can mean a lot of things. In fact, there are eight different types of homeowners insurance, and they can vary by the amount of perils they offer coverage for, the type of homes they offer coverage for, and one type of policy is actually for people who rent rather than own. (Better known as renters insurance.)

When we talk about what homeowners insurance is or what it covers, we’re typically referring to special form policies, also known as HO3s, which are designed for homeowners.

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Claim reimbursement

When you file a claim for covered losses or damages and you and your insurer agree to a settlement, you’ll first pay your deductible, which is the amount you pay out of pocket for damages before your insurer covers the rest. The amount reimbursed depends on which of the following two reimbursement provisions are in your policy:

Actual cash value

Actual cash value (ACV) policies are the least expensive, are usually required for older homes, and offer the smallest reimbursement for damages. ACV policy settlements only reimburse you for what your home or personal property was worth at the time it was damaged or destroyed.

Replacement cost value

Replacement cost value (RCV) policies are more expensive than ACV, but are the safest bet in making sure you’re not left paying out of pocket expenses to make up for the depreciated value. RCV settlements replace the damaged or stolen property at its full cost to buy new, regardless of wear and tear.

Coverage components

As you go through your policy, you’ll notice it’s broken up into six provisions, or coverages, and each have a specific purpose.

Three coverages that form the hazard insurance portion of your policy:

  • Dwelling: Covers the structure, roof, and foundation of your home.

  • Other structures: Covers any structures that aren’t connected to your house, like your garage, shed, deck, or your basketball arena.

  • Personal property: Covers your personal belongings contained inside as well as outside the home.

And three other core coverages:

  • Loss-of-use: Covers additional expenses if you’re forced to live somewhere else after a disaster or event that makes your home uninhabitable.

  • Personal liability: Covers your personal liability expenses if someone is injured in your home and sues.

  • Medical payments: Pays for a guest’s medical expenses if they’re injured in your home

Hazard insurance

Hazard insurance protects your house, other structures near your house, and your personal property from hazards covered by your policy. There are two types of policies that determine what hazards are covered: named peril policies (protects your home and personal belongings against 16 perils named in your policy) and open peril policies (everything is covered except perils specifically listed in the policy).

It varies by insurer and policy type, but the dwelling and other structures provisions of your policy are usually covered by open perils, or those left off your policy, while damage to personal property is only covered if it results from one of the 16 left in your policy.

Named peril policies

Named peril policies will only cover these 16 perils:

  • Fire or smoke
  • Lightning
  • Hail and windstorms
  • Theft
  • Vandalism
  • Damage from vehicles
  • Damage from aircraft
  • Explosions
  • Riots and civil commotion
  • Volcanic eruption
  • Accidental discharge or overflow of water or steam
  • Falling objects
  • Freezing of household systems like AC or heating
  • Sudden and accidental damage from an electrical current
  • Weight of ice, snow, or sleet

Open peril policies

Opens peril policies will cover everything except these perils:

  • Earth movement
  • Ordinance of law
  • Water damage (if it’s gradual)
  • Power failure
  • Neglect
  • War
  • Nuclear hazard
  • Intentional loss
  • Government action
  • Collapse of structures (some coverage may be provided in your policy)
  • Theft to your house if its under construction
  • Vandalism (if home is vacant for more than 60 days)
  • Mold, fungus, or wet rot (some coverage may be provided)
  • Wear and tear
  • Mechanical breakdown
  • Smog, rust, and corrosion
  • Smoke from agricultural smudging and industrial operations
  • Discharge or seepage of pollutants
  • Birds, vermin, rodents, and insects
  • Animals that you own

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.