The world of homeowners insurance comes with a lot of different terms and phrases – and one of the terms that shows up most often is “hazard insurance”. If you’re closing on a home loan your lender is going to require that you have hazard insurance to protect your home (and their investment). But what they’re really looking for when they ask you about your hazard insurance is the coverage that comes from a standard homeowners policy.
Hazard insurance is the part of your homeowners insurance policy that protects your home from specific perils (or hazards). But while hazard insurance covers things like structural damage and some natural disasters it won’t cover every peril that may strike, meaning that you’ll want to look at a more comprehensive homeowners insurance policy.
What is hazard insurance?
Hazard insurance is the part of a homeowners policy that protects your home from damage caused by a “hazard” or natural disaster, also known as “dwelling coverage.” It generally covers damage or loss to the structure of your house, the other structures on your property — a basketball court or detached garage, for instance. Non-structural items, such as personal possessions, are covered under a separate section of homeowners insurance policies, often referred to as ‘content insurance.’
Every insurance company has a different list of approved natural disasters that qualify for hazard insurance coverage. Typically, hurricanes, tornadoes, blizzards, explosions, eruptions and other extreme weather events are covered. Suppose a covered natural disaster damages your home or personal belongings. In that case, you file a standard insurance claim and, if approved, you get reimbursed for the repairs.
All homeowners insurance policies come with hazard insurance, but it’s still an important component of your policy. Without hazard coverage in your homeowners policy, you’d be footing the bill for the cost to replace your entire home if a freak windstorm or an explosion knocked it down, and you’d also have to replace the built-in appliances, plumbing, flooring, and roof.
What does hazard insurance cover?
What hazard insurance covers will depend on your specific policy, but it generally provides coverage for 16 major perils, including:
- Fire or smoke
- Hail and windstorms
- Damage from vehicles
- Damage from aircraft
- Riots and civil commotion
- Volcanic eruption
- Accidental discharge or overflow of water or steam
- Falling objects
- Freezing of household systems like AC or heating
- Sudden and accidental damage from an electrical current
- Weight of ice, snow or sleet
How much does hazard insurance cost?
The short answer is that it depends. You need to shop around for homeowners insurance that includes hazard coverage tailored to your needs. Your policy won’t be useful if it excludes tornado damage and you’re in “Tornado Alley,” nor will it be helpful if you are in southern California and forego supplemental earthquake insurance.
Some experts say the cost of hazard insurance is around .25% to .3% of the home’s value. This is not a rule or average, though, but a ballpark estimate. In 2017, the average cost of homeowner’s insurance in the United States was $1,211. State by state insurance premium averages are also available, up to 2017. It’s important to keep in mind that these premium averages represent the cost of an entire homeowners insurance policy and not just the hazard insurance portion. That said, hazard insurance often has the highest coverage limits of any protections within these policies and may represent a significant portion of the premium cost.
So how much will hazard insurance cost you? There are a few basic factors that will help determine the cost of your premium, including:
- The age and value of your home
- The materials your home is made of
- The type of policy limit you choose
- The policy deductibles you choose
- Whether your home has certain security features
- The location of your home
The easiest way to tackle it is to decide what you need and then shop around for the best price and coverage. When deciding on your policy, it helps to first get a sense of the natural hazards in your area. People in the Midwest are unlikely to need hurricane coverage, while those on parts of the east coast may need it greatly.
You’ll also want to make sure your deductible is affordable for your budget. Your policy won’t do you any good if you can’t afford the deductible when disaster strikes, so it may be worth paying more each month for a policy with a lower deductible.
Who should get hazard insurance?
Everyone who has a homeowners insurance policy automatically has hazard insurance, but this type of coverage is more valuable to homeowners in certain locations. Specifically, homeowners in states that face a high risk of natural disasters are more likely to file a hazard insurance claim.
Homeowners in states that get hit by hurricanes, like Florida, Louisiana, Texas, North Carolina and New Jersey, should have hazard insurance to protect against hurricane-related damage. Additionally, homeowners in midwestern states, like Oklahoma, Nebraska and Kansas, should have hazard insurance to cover their home in the event of a tornado.
What to look for when shopping for hazard insurance
Hazard insurance is part of your homeowners policy, so you’ll want to make sure your homeowners policy is as comprehensive as possible. Not all policies are equal, though. The easiest way to handle it is to ask yourself what you need covered and then make sure any plan you consider includes it.
If you live in an area that’s prone to earthquakes, mudslides, or landslides, or you’re in a floodplain, you may have to purchase supplemental coverage on top of regular hazard coverage. Earthquake insurance and flood insurance are both sold through most private insurance providers.
How much hazard coverage do you need?
How much will it cost to replace your home if it’s totally lost to a disaster? That’s how much hazard coverage you need. That dollar amount should take into account the cost of your home, the value on the current market and the cost to replace the contents of your home.
Companies that offer hazard insurance
Any company that offers homeowners insurance offers hazard insurance. That includes most of the major insurance companies, like Nationwide, Allstate, State Farm, Hartford, Liberty Mutual and others. Check around to determine what companies service your state or area and go from there.