When you take out a mortgage on a house, your lender may require you to buy homeowners insurance or "hazard insurance" to protect the home against unexpected damage or loss.
This has led some to believe that hazard insurance is separate from homeowners insurance — but it actually just refers to the part of your policy that protects the structure of the house from covered perils. Learn about what hazard insurance is, what it covers, and why it’s required by mortgage lenders.
Key takeaways
Hazard insurance refers to an insurance policy that covers damage to the structure of your home in case of a fire, windstorm, hail event, or other disasters.
Mortgage lenders often require borrowers to secure a hazard insurance policy before letting them close on the home.
While there are several policy types that could qualify as hazard insurance, the most common is homeowners insurance.
Along with providing hazard insurance via dwelling coverage, home insurance includes multiple other coverages that homeowners need.
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Is hazard insurance the same thing as homeowners insurance?
While not the technically the same thing, hazard insurance is included in home insurance via the dwelling coverage portion of the policy. In other words, hazard insurance refers to the part of your homeowners insurance coverage that protects the structure of your home from covered disasters or losses.
Some mortgage lenders only require proof of a hazard insurance policy, as opposed to a full home insurance policy with additional coverage for personal property, loss of use, and liability. This is because the lender's financial interest is in the home itself and ensuring it stays protected in case of damage due to fire, storm, vandalism, and other disasters.
Since there are several different types of home insurance coverage options beyond just the standard HO-3 homeowners policy — including ones that only provide structural coverage and nothing else — some lenders' insurance requirements can be fairly open-ended.
Hazard insurance | Homeowners insurance | |
|---|---|---|
What it does | Pays for damage to the structure of your home | Pays for damage to the structure of your home, personal property loss, and liability-related expenses |
When to use it | If your home is damaged by a covered peril | If your home or belongings are damaged or stolen, or if you're legally responsible for someone else's injury or property damage |
How to get it | By purchasing homeowners insurance | By applying for a policy through an insurance company or independent agent |
Homeowners insurance
Homeowners insurance is a financial protection policy that covers damage or loss to your property and liability expenses if you’re legally responsible for an accident. Since it is made up of several different types of property and liability coverages, home insurance is often referred to as a “package policy.”
There are several policy types (HO-1 through HO-8) that provide different levels of protection for various property types and coverage needs. If you own a condo, you’ll get what’s referred to as an HO-6 condo insurance policy; if you’re a renter, you’ll get an HO-4 renters insurance policy; if you own a single-family home, you’ll get an HO-3 homeowners insurance policy.
What does homeowners insurance cover?
A standard homeowners insurance policy is made up of six coverages. They also have their own distinct limit of liability, which is the maximum amount your insurance company will pay out in the event of a claim.
Dwelling coverage: Covers the cost of damage to the structure of your home and any attached structures.
Other structures coverage: Covers the cost of damage to structures that aren’t attached to your home, like a detached garage, shed, fence, or above-ground pool.
Personal property coverage: Covers the cost of personal property damage or theft. Applies to losses that occur on and off of your property.
Loss of use coverage: Covers the cost of temporary lodging, restaurant meals, and relocation expenses while your house is being repaired after a covered loss.
Personal liability coverage: Covers you from expensive lawsuits if you’re legally responsible for someone’s injury or damage to their property.
Medical payments coverage: Pays for a guests’ medical expenses, regardless of who is at fault.
Learn more >> What does home insurance cover?
How does home insurance work?
The amount you’re reimbursed on a homeowners insurance claim for damage or loss to your home or personal property depends on which level of coverage you have in your policy. A standard homeowners insurance policy has two distinct coverage levels:
Actual cash value: This pays the depreciated value of your home or personal belongings if they’re stolen or damaged by a covered peril. Actual cash value is the cheapest level of coverage, but it also provides lower claim reimbursements.
Replacement cost value: Replacement cost covers the value of your home or personal belongings if they’re stolen or damaged without deducting depreciation from the claim payment. Replacement cost is more expensive than actual cash value, but provides larger claim reimbursements.
Learn more >> ACV vs. RCV
Ready to shop hazard insurance?
Hazard insurance
Hazard insurance refers to the section of your homeowners insurance policy that covers the structure of your home against covered perils. It’s also a term that some lenders use to refer to a homeowners insurance policy package.
How does hazard insurance work?
Depending on what type of home insurance you have, the hazard insurance part of your policy may be covered on a named perils basis, meaning only damaged caused by the perils specifically named in your policy are covered; or on an open perils basis, which means all causes of damage or loss except the home insurance exclusions listed in the policy are covered.
In a standard home insurance policy, your dwelling and other structures have open perils coverage, while your personal belongings have named perils coverage.
Named perils
Fire or lightning
Windstorm and hail
Explosion
Riot or civil commotion
Damage caused by aircraft
Damage caused by vehicles
Smoke
Volcanic eruption
Vandalism and malicious mischief
Theft
Falling objects
Weight of snow, ice, or sleet
Accidental discharge/overflow of water
Sudden tearing/cracking of appliances
Freezing
Power surges
Open perils
Earth movement
Ordinance of law
Certain types of water damage
Power failure
Neglect
War
Nuclear hazard
Intentional loss
Government action
Dog bite liability for certain breeds
Home-based businesses
Pest damage and removal
Ready to shop hazard insurance?
Frequently asked questions
What is hazard insurance on a mortgage?
If your lender requires you to purchase hazard insurance before extending you a loan, they're referring to any insurance policy that covers the structure of the home from disasters or hazards, like fire, smoke, lightning, windstorms, and vandalism. This and other types of financial protection are available in a home insurance policy.
How do you get hazard insurance in Florida?
If you're a Florida resident in need of hazard insurance, you may be able to purchase coverage through a normal insurance company, an excess and surplus lines (E&S) insurer that specializes in high-risk properties, or via Citizens Insurance — Florida's version of a FAIR Plan.
Is hazard insurance the same thing as mortgage insurance?
No. Hazard insurance and mortgage insurance are two different kinds of financial protection that serve different parties. Hazard insurance covers you the homeowner in the event your house is damaged, while mortgage insurance protects the lender if you fail to make mortgage payments.
