Cost & Coverage
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Learn about the similarities and differences between hazard insurance and homeowners insurance
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.
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 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.)
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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.
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 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 will only cover these 16 perils:
Opens peril policies will cover everything except these perils:
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Yes, we have to include some legalese down here. Read it larger on our legal page. Policygenius Inc. (“Policygenius”) is a licensed independent insurance broker. Policygenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by Policygenius for general informational and educational purposes. We do our best efforts to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application. Savings are estimated by comparing the highest and lowest price for a shopper in a given health class. For example: for a 30-year old non-smoker male in South Carolina with excellent health and a preferred plus health class, comparing quotes for a $500,000, 20-year term life policy, the price difference between the lowest and highest quotes is 60%. For that same shopper in New York, the price difference is 40%. Rates are subject to change and are valid as of 2/17/17.
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