The difference between homeowners insurance and hazard insurance

When it comes to insuring your home — which is often the largest single financial investment you’ll make — you’ll want to make sure you have the right coverage for your home. If you’re in the midst of shopping around for homeowners insurance, the term hazard insurance may come up as part of the coverage discussions. But how are homeowners insurance and hazard insurance related, and are they the same thing? If this question has been on your mind, the good news is that the distinction is fairly simple between the two coverage types.

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. To put it simply, hazard insurance is not a separate policy you need to purchase; it is a component of your homeowners insurance policy. As such, it’s not an interchangeable term with homeowners insurance.

If anything, hazard insurance is interchangeable with dwelling coverage because it refers to a list of perils that your homeowners policy insures your home against. As such, you might hear lenders using the term “hazard insurance” during your discussions about homeowners insurance policies, as these types of perils are the lender’s main concern.

Homeowners insurance

Homeowners insurance consists of a collection of coverage types that work to insure different aspects of your home. In addition to dwelling coverage, your homeowners insurance can cover detached structures, like a swimming pool or a detached garage, your personal property and more. Common coverages that are included in standard homeowners insurance policies include:

• Dwelling coverage: Dwelling coverage protects your actual home— meaning its foundation, roof, walls, windows — effectively, whatever does not fall out if your house was turned upside down.
• Loss of use coverage: If you are forced to live somewhere else after a covered peril, loss of use coverage will cover your additional living expenses up to a certain limit.
• Other structures coverage: Have detached structures on your property? The other structures portion of your policy protects unattached things like a shed, greenhouse or fence.
• Medical payments coverage: If a guest is injured at your home, this coverage will 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 covers your court expenses, up to limits.
• Personal property coverage: Covers lost, damaged, or stolen personal property you have in your home if the cause of loss is a covered peril.

Hazard insurance

Hazard insurance is not a separate policy from your homeowners insurance. It is simply the perils your homeowners insurance protects against. When it comes to this aspect of your policy, there are two types you have to choose from: named perils and open perils.

A named perils policy protects your home against 16 specific home insurance perils. Those perils are:

• Electrical current
• Explosions
• Falling aircraft/objects
• Fire
• Freezing of A/C or heating systems
• Hail
• Lightning
• Overflow of water or steam
• Riots
• Smoke
• Theft
• Vandalism
• Vehicles
• Volcano eruptions
• Weight of ice or snow
• Windstorms

Any peril not listed above is not covered in a standard named peril policy. However, this is a pretty extensive list and works for many homeowners.

An open peril policy protects against every peril you can think of, except for these common exclusions:

• Collapse of internal structures
• Discharge of pollutants
• Earth movement
• Government intervention/ action
• Intentional damage by owner or inhabitants
• Mechanical breakdown
• Mold, wet rot, or fungus
• Neglect
• Normal wear and tear
• Nuclear fallout
• Ordinance of law
• Pets
• Power failure
• Some types of water damage
• Smog, corrosion, or rust
• Smoke from nearby industries
• Theft during construction
• Vandalism while vacant
• War
• Wildlife/ vermin

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

HO-1 (though it only protects against 10 named perils), HO-2, HO-4, HO-6, HO-7, and HO-8 all adopt the named perils approach to hazard insurance, while HO-3 and HO-5 are the only ones that use open perils.

The most common type of homeowners insurance sold in the United States is an HO-3 policy. It covers your home, medical payments, personal property, liability, as well as additional living expenses.