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Understanding hazard insurance versus homeowners insurance

Homeowners Insurance Vs Hazard Insurance

If you are in the process of buying a new home or getting a mortgage approved, you may be required to secure hazard insurance. It is important that as a homeowner, you have an understanding of the differences between hazard insurance and home insurance. To put it simply, hazard insurance is not standalone insurance, instead, it is part of your homeowners insurance policy.

Understanding the Difference

Many homeowners often confuse different terms when it comes to home insurance and hazard insurance. While the terms can usually be interchanged, it is actually quite easy to understand the differences. Hazard insurance is, in fact, just a subsection of a homeowners insurance policy.

Hazard Insurance Explained

Hazard Insurance is specifically a part of your homeowner’s policy which acts as the protection for the structure of your home, against some of the most common types of perils like theft, fire, and vandalism. In case any of these perils damages your home, you will be covered up to the limits of your coverage. Furthermore, in some home insurance policies, the hazard section will only cover the structure of your home. While in others, it may include additional structures in your property, such as a garage, a small shed, and fences.

Homeowners Insurance Explained

A homeowners insurance means it is the entire policy, including hazard insurance, which protects your home from different forms of peril. You can choose between eight different types of home insurance policies. Each one can vary according to the extent of its coverage, the perils it covers, the types of home that it covers, and a unique type which is made specifically for renters. Nevertheless, a standard homeowners insurance, otherwise known as HO-3, has the following sections:

  1. Hazard Insurance – Protects the structure of your property from different types of peril.
  2. Additional Expenses – Provides coverage in case you incur added expenses if you cannot live in your property while it is being repaired.
  3. Personal Liability – Protects you from liability in case another person outside of your household is injured in your property and they file a case against you.
  4. Medical Coverage – Provides protection if you are liable to pay medical expenses when a guest is injured within your property.

One thing you need to remember is that not all home insurance policies are created equal so some may have a wider range of covered perils. Depending on your insurance policy, you may have a longer list of covered perils. HO-2 form insurance includes 16 possible perils, such as:

  • Lightning or fire
  • Windstorm or hail
  • Explosions
  • Damage from vehicles (unless caused by the insured)
  • Damage from aircrafts
  • Riots or civil commotion
  • Theft (with limited liability of up to $1,000)
  • Malicious mischief or vandalism
  • Smoke
  • Volcanic eruptions
  • Falling objects
  • Accidental discharge of steam or water
  • Weight damage due to snow, ice, or sleet
  • Freezing of household systems
  • Accidental tearing, bulging, cracking, or bursting of pipes or household systems
  • Accidental damage due to artificially generated electrical current

As for the standard HO-3 insurance it usually has more inclusions and instead excludes specific perils. In a typical plan, perils such earthquakes, will vary depending on where your home is located. Still, you can easily purchase an additional product to get this specific coverage.

When Are You Required To Purchase Hazard Insurance for your home?

Securing homeowners insurance is crucial if you own a home even when it is not a legal requirement. Still, some cities and neighborhood associations require a homeowners insurance. There are also times when you will be required to purchase coverage. For example, most, mortgage institutions make home insurance and hazard coverage a requirement. This will protect their investments because the value of properties will easily reduce in value in case of damage. In fact, lenders will likely require that you pay the premium’s first year in advance.

Hazard insurance, also known as dwelling coverage, is crucial because it is one of the most frequent claims and incurs the most expensive damages.

Amount of Coverage

Since the costs of repairs and rebuilt can easily mount up, it is crucial to decide the value of your coverage.

Actual Cash Value (ACV)

ACV will reimburse replacement cost, any depreciation will also be subtracted. Since the cost of labor and materials will vary over time, it could mean that your limits could not fully compensate for rebuild and repair.

Replacement Cost Value (RCV)

This type of coverage will repair or replace any damaged property with similar quality and kind materials.

Extended Replacement Cost Value

Provides protection as the coverage sets a percentage that is higher than your insurance policy’s limits. This will provide protection in case of inflation.

Finding the right home insurance coverage matters if you want to provide the right kind of protection for your home. Understanding the different terms and what is included in your policy will make any home insurance an investment that will work for you.

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