The Difference Between Home Insurance and Hazard Insurance

If you’re closing on a home, you may hear your mortgage company use the terms “hazard insurance” and “home insurance.” Although they’re sometimes said interchangeably, they’re not exactly the same thing. Hazard insurance is coverage for the physical structure of your home against losses like fire, wind, lightning and hail (to name a few).  Home insurance, on the other hand, includes protection for your home’s physical structure, your personal property, liability insurance and other coverage types. Bankrate’s insurance editorial team digs into hazard insurance to help you understand how it fits into your homeowners insurance policy.

Is homeowners insurance the same as hazard insurance?

No, hazard insurance is not the same thing as homeowners insurance, but it is part of your homeowners insurance policy. Hazard insurance is one part of the average homeowners insurance policy — it is not something you need to purchase separately. It plays a role in your homeowners insurance, but it’s not an interchangeable term with homeowners insurance.Hazard insurance and dwelling coverage are the same thing. Dwelling insurance is the part of your policy that covers your actual house — from roof to foundation — but not the contents of your home or other structures. It is often called hazard insurance because the average homeowners policy includes coverage for a list of perils, or causes of loss, that can damage or destroy your home.

Another term you may hear from your mortgage lender is “mortgage insurance.” This is completely different from hazard and home insurance. Private mortgage insurance, or PMI, is an extra fee paid by borrowers who make a down payment of less than 20 percent, or if you have less than 20 percent equity when refinancing a home loan. PMI works to protect your mortgage lender in case you default on your loan, while home insurance protects the mortgage lender’s investment in your home and your growing home equity. PMI is usually automatically canceled when your loan balance reaches a 78 percent loan-to-value ratio. 

What homeowners insurance covers

Let’s zoom out and look at what a standard homeowners insurance policy covers. Homeowners insurance consists of a collection of coverage types that insure different aspects of your home. In addition to dwelling coverage, your homeowners insurance could cover detached structures, like a detached garage, your personal property and liability if someone is injured on your property. Common coverage types that are included in standard homeowners insurance policies include:

• Dwelling coverage: This part of your homeowners insurance, often referred to as hazard insurance, provides financial protection for repairing or replacing the physical structure of your home, including its foundation, roof, walls and windows.
• Personal property coverage: This aspect of your policy safeguards against the loss, damage or theft of personal belongings within your home or even in your vehicle, as long as the cause of loss (peril) is covered by your policy.
• Other structures coverage: If you have any detached structures on your property, such as sheds, greenhouses or fences, the other structures portion of your policy ensures they are protected in the event of damage or destruction.
• Loss of use coverage: In situations where you’re required to reside elsewhere due to a covered loss, loss of use coverage steps in to cover your additional living expenses, such as temporary accommodation costs, up to a specified limit.
• Medical payments coverage: If a guest is injured at your home after a covered peril, this coverage could pay their medical expenses up to predetermined limits.
• Personal liability coverage: If you are sued because someone is injured at your home, personal liability coverage could cover your court expenses up to policy limits.

As you can see from this list, hazard insurance is only one component among a handful of coverages that protect your finances against damage to different elements of your home and property in different ways.

What does hazard insurance not cover? 

Hazard insurance is financial protection for your home — roof, walls, floors and foundation — from different perils. Most hazard insurance policies protect against these perils, but  there are important exclusions to be aware of: 

Some exclusions can be insured against with different policies. For instance, you can purchase an earthquake insurance policy to protect your home financially from seismic activity. Flood insurance is also available, and may even be required by your mortgage lender in addition to hazard insurance. 

Insurance exclusions can also vary by location. In some high-risk hurricane states and counties, wind damage may be an excluded policy peril. In that case, you’d need to purchase a separate wind policy to help round out your hurricane insurance coverage. 

Do I need hazard insurance? 

Unless you own your home outright, you’ll likely need hazard insurance. Your mortgage company has a stake in your home and will want to make sure that, if the home is destroyed, they can recoup their financial investment. Even if you own your home outright, insuring it is still a wise idea. 

What is hazard insurance for homes?

So what does dwelling or hazard insurance cover? That depends on the type of policy you have. Hazard insurance protects against either named perils or open perils, depending on the type of policy. Let’s look at what that means.

A named perils policy protects your home against 16 specific home insurance perils. “Perils” is just another word to indicate the types of disaster or mishap that can happen to damage your home, like fire or flooding.

Those named perils include explosions, falling aircraft/objects, fire, hail and a handful of others. If your policy is based on named perils, any peril not listed on your policy is not covered in your policy.

An open peril policy, which is less common, protects against just about any peril you can think of, except for any exclusions that are named in the policy. Common exclusions include perils such as collapse of internal structures, discharge of pollutants, earth movement and others.

Though it may seem like an open perils policy has more exclusions than inclusions, it actually protects against far more items than a named policy. It is for this reason that an open perils policy typically costs more.

There are eight types of homeowners insurance policies offered by most providers to choose from, and each either has a named perils approach or an open perils approach.

But then it gets a little more complicated, because HO-3 policies, the most common type, use the open perils structure for covering your dwelling (that’s your hazard insurance), but a named perils approach for the contents of your home (that’s the personal property coverage portion of your policy). So if you have an HO-3 policy, which is likely, your insurance covers you for slightly different perils depending on whether it’s covering your dwelling or your personal property.

To sum up, hazard insurance refers to insurance that directly covers you financially if your home’s structure is damaged by covered perils, or hazards. It does not cover liability or medical costs, nor does it cover any damage that might occur to other structures on your property, such as a shed or detached garage.

Frequently asked questions

• How much does homeowners insurance cost?
  

  The average price of a homeowners insurance policy with $300,000 in dwelling coverage is $2,285, according to October 2024 data analyzed from Quadrant Information Services. Your own rate is likely to vary from this, since every premium is unique and tailored to the circumstances of each homeowner’s needs and the nature and location of their property. Most insurers offer free quotes, so it is simple to find out what your own rate would be by looking online or calling an agent.

• How can I save money on homeowners insurance?
  

  Experts say the most effective way to save on your home insurance is to shop around and compare quotes for the same types and levels of coverage. One way is to ensure that you are earning all the discounts for which you are eligible. Almost every insurer has at least a small handful of discounts that can lower the cost of your policy. Another way you can save on your premium is by increasing your deductible — but remember that you will have to pay that amount before your policy kicks in after a claim, so avoid raising it to a level you would have difficulty paying.

• Is hazard insurance another name for homeowners insurance?
  

  Technically, no. Home insurance includes liability insurance, personal property insurance , and can help if you are displaced from your home due to a storm — in addition to covering your home’s physical structure. Hazard insurance, on the other hand, only refers to the part of your home insurance policy that covers the physical structure of your home.

• Is hazard insurance included in a mortgage?
  

  If the conditions of your mortgage require you to have hazard insurance, you can usually choose your own provider — as long as the policy meets your financial lender’s coverage requirements. If you don’t choose your own insurance, your lender may instill what’s called “forced-place insurance,” which covers little but costs a lot.