What is hazard insurance for homeowners?

Hazard insurance is the part of homeowners insurance that covers your home and personal property against natural hazards, including fire and wind damage.

Pat Howard 1600

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Pat Howard

Pat Howard

Senior Editor & Licensed Home Insurance Expert

Pat Howard is a senior editor and licensed home insurance agent at Policygenius, where he specializes in homeowners insurance. His work and expertise has been featured in MarketWatch, Real Simple, Fox Business, VentureBeat, This Old House, Investopedia, Fatherly, Lifehacker, Better Homes & Garden, Property Casualty 360, and elsewhere.

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Hazard insurance and homeowners insurance are the same thing. Most mortgage lenders require you to purchase hazard insurance when you close on your home. Since the lender has a financial interest in the property, they want to make sure it’s covered against natural hazards like rain, fire, and wind. If your home is burglarized or damaged by a covered peril, you can tap into hazard insurance to reimburse you for the loss.

Key takeaways

  • Hazard insurance is not separate from homeowners insurance — they're the same thing.

  • Hazard insurance is the section of your homeowners insurance policy that covers the structure of your house, other structures on your property, and your personal belongings against natural disasters and hazards.  

  • When you take out a mortgage, your lender will require you to get hazard insurance before extending you a loan.

  • The average cost of hazard or homeowners insurance is around $1,249 per year, according to the National Association of Insurance Commissioners.

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What is hazard insurance?

Hazard insurance covers the structure of your home and personal property from covered perils — including fire, lightning, wind, hail — as well as vandalism. If your house or belongings are damaged by a covered peril, you can file a claim with your insurance company to be reimbursed for the damage. 

Once your claim is accepted, you’ll pay your policy deductible, which is the amount you’re responsible for covering on a claim. Once your deductible is subtracted from the claim settlement, your hazard insurance will pay out for repairs — up to the coverage limit in your policy.

Is hazard insurance required for a mortgage?

Yes — before your lender extends you a loan, it’ll typically require you to buy hazard insurance (aka homeowners insurance) to protect your investment against natural disasters and other covered losses. 

Your lender may also require that you pay for hazard insurance through an escrow account as part of your monthly mortgage payment. When your homeowners insurance bill is due, your lender pays the insurance premiums from this account.

Is hazard insurance the same thing as homeowners insurance?

Hazard insurance refers to the section of homeowners insurance that covers the structure of your home, additional structures on your property, and your personal property. It is not separate from homeowners insurance. When your lender requires you to get hazard insurance for your home, they’re referring to a standard homeowners insurance policy. 

There are several kinds of hazard insurance policies (HO-1 through HO-8) with varying levels of coverage. The way your property is valued and the amount you’re reimbursed on claims will depend on what kind of policy you have. Generally speaking, the lowest level of coverage (actual cash value) is cheaper, and the most comprehensive level of coverage (replacement cost value) is more expensive.

Actual cash value policies

Actual cash value (ACV) policies pay out for the depreciated value of your home, meaning its age and condition will be factored into your claim reimbursement.

For example, if your 15-year-old roof is damaged, ACV coverage will reimburse you for the loss only after 15 years of depreciation have been subtracted from the payout.

Replacement cost value policies

Replacement cost value (RCV) policies pay out the amount that it’d cost to rebuild the home with materials of similar value and quality. It does not deduct depreciation from your payout. So if your 15-year-old roof was damaged, you’d be reimbursed for the value of a new roof. Hazard insurance premiums are generally higher under RCV plans, but your coverage is significantly better.

Extended replacement cost policies

Extended replacement cost policies cover your home at its replacement cost, but with the added guarantee that the insurer will cover any unexpected increase in repair costs. Most insurers will give you the option of extending your home’s replacement cost an additional 20% or 50% past your dwelling coverage limit.

If you live in areas prone to natural or regional disasters where labor or supplies could become temporarily scarce or expensive during the rebuild, extended replacement cost is a great option.

→ Learn more about hazard insurance vs. homeowners insurance

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What does hazard insurance cover?

Hazard insurance covers your home in the event it’s damaged by a covered peril. A general rule of thumb for homeowners insurance coverage is this: If the damage is sudden and accidental, it is often covered (except for damage due to earthquakes and flooding). But if it results from maintenance issues or general wear and tear, it likely won’t be covered. 

What hazard insurance covers

Certain policy types, like HO-1 and HO-2 homeowners insurance, only cover the 16 named perils listed in your policy, including:

  • Fire or lightning

  • Windstorm or hail

  • Explosion

  • Riot or civil commotion

  • Aircraft

  • Vehicles

  • Smoke

  • Vandalism

  • Theft

  • Falling objects

  • Weight of snow, ice, or sleet

  • Accidental discharge or overflow of water or steam

  • Sudden and accidental tearing apart, cracking, burning or bulging

  • Freezing of plumbing

  • Sudden and accidental damage from an artificially generated electrical current

  • Volcanic eruption

What hazard insurance does NOT cover

The more common HO-3 and HO-5 policies provide open perils coverage, meaning your home is covered against everything except the specific perils listed in the policy, including:

  • Earthquakes

  • Flood damage

  • Mold

  • Foundation cracking from tree roots

  • Faulty construction

  • General wear and tear

  • Corrosion

  • Pests (insects, vermin, rodents, etc)

  • Intentional damage

  • Natural settling, cracking, shrinking, expanding of the foundation

Earthquakes and floods aren’t covered by hazard insurance, but your insurer may offer separate flood or earthquake insurance that you can purchase as a separate difference in conditions (DIC) insurance policy or home insurance add-on.

How much does hazard insurance cost?

Hazard insurance makes up the bulk of your homeowners insurance policy, which on average costs around $1,899 annually, according to our analysis of 2022 home insurance rate data from across the country.

The overall cost of coverage will depend on factors related to the home itself, including:

  • Your home’s square footage

  • The location of your home

  • The construction type of your home

  • Your roof type — hip, gable, or flat

  • The number of bathrooms in your home

  • Your home’s age

Insurers set rates based on how likely you are to file a claim. If you live in an area that experiences frequent natural disasters, or your home is older and more susceptible to damage, that can significantly impact your rates.

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