If you’re wondering what hazard insurance is, you’re in the right place. This often-overlooked policy can save you big money in the event of a covered loss. Want to know more? Read on to learn everything you need to know.
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Jump to:
- What Is Hazard Insurance?
- What Does It Cover?
- How Hazard Insurance Works
- Who Needs It
- How Much Do You Need?
When a home is damaged by a natural, severe weather event or other destruction, homeowners rely on hazard insurance to cover the cost of the damage and the necessary repairs and replacements that must be made.
What Is Hazard Insurance?
Hazard insurance coverage is part of the larger “umbrella” of homeowner’s insurance. Hazard insurance is the portion of the policy that specifically covers the structure of the home itself.
Homeowner’s insurance also provides non-structural coverage, including personal liability, personal property within the home, and loss of use.
What Does Hazard Insurance Cover?
Hazard insurance doesn’t typically cover personal property that might be damaged in the event of a severe weather event or other type of sudden destruction. Allstate Insurance says theft and vandalism are sometimes covered.
Hazard insurance typically covers the actual structure of the home’s:
- Roof
- Foundation
- Everything sandwiched between
- Attached garages
In exceptional cases, the coverage may be extended to include personal property within the home as well. In terms of severe weather events and types of destruction, hazard insurance covers damage caused to a home by fires, lightning, hail, sleet, snow, rain, wind, and tornadoes.
It also covers damage caused by smoke, explosions, falling objects, water damage from a burst pipe, power surges, civil unrest, and riots.
As you can see, many types of disastrous events are covered by hazard insurance. Some events are not covered by this type of insurance, though, and require an additional policy. We’ll look at that next.
What Is Not Covered by Hazard Insurance?
Not every disastrous or damaging event is covered under most homeowner’s insurance policies. Events not covered by hazard insurance include damage from insects, termites, rodents, or birds, rust, rot, and mold.
It also excludes “expected” weather phenomena for some high-risk regions where those types of damage occur somewhat regularly. This includes tropical storms and hurricanes in Florida, earthquakes in California, flooding in Tennessee, and more.
Although conventional hazard insurance does not cover these severe weather events, homeowners can still get coverage for these events and the damage they cause.
This is done by adding a separate “catastrophe insurance” policy that has extended coverage to include hurricanes, floods, earthquakes, landslides, and more.
How Does Hazard Insurance Coverage Work?
When a severe weather event happens and causes damage to a home covered by hazard insurance, the homeowner can then initially survey the damage and file a claim with their insurance company according to the policy.
Claim Is Verified
If the insurance company deems that the severe weather event was indeed covered, they will start the process of determining how much the homeowner is owed and what repairs will be necessary.
The insurance company will send a team to the property to survey it in-depth and discover the true extent of the damage, ensure all damage was genuinely caused by the weather event, and make sure everything that was damaged had been properly installed before the weather event.
Damage Is Assessed
In other words, they’ll be checking to make sure that they are indeed responsible for covering the damage and not the homeowner (if the roof is found to be improperly installed, they may refuse to cover it because improper installation made the roof more susceptible to damage).
If the insurance adjuster does determine that the damage was due to the severe weather event and is covered by the homeowner’s policy, they will have people come out to estimate the cost of the damage that occurred and what it will cost to replace or repair those items or structures.
Deductible Is Paid
The homeowner will pay the insurance company the agreed-upon deductible out-of-pocket as an upfront cost. The insurance company will cover the rest of the damage and needed repairs and replacements up to a specific limit.
This limit is predetermined, and you can find it in your homeowner’s insurance policy, along with the exact amount of your deductible.
Check Is Cut
The insurance company will then “cut a check” to the homeowner to have these repairs and replacements done. Typically, the insurance company will work closely with contractors or companies they can recommend or secure discounts to have the repair work done.
For this reason, homeowners typically pay for the entire year of their hazard insurance premiums upfront (rather than monthly or every six months) because when an event occurs, a larger amount of cash will need to be made available to them quickly.
Who Needs Hazard Insurance?
Every homeowner needs hazard insurance. It’s a requirement to have homeowner’s insurance that includes hazard insurance for most mortgage holders. The bank or lending institution wants to make sure the home they’re loaning you money to pay for is not suddenly destroyed or lost in the event of an “act of God.”
Just like a car that is financed is required to have full insurance coverage – liability and collision – a mortgaged home has to have comprehensive insurance coverage.
Homeowners in High-Risk Areas
Some lenders require that homeowners in high-risk areas also have an additional catastrophe coverage policy (floods, hurricanes, earthquakes, etc.) to ensure the home is protected against any severe event.
These policies differ by lender, so be sure to check with your institution to see what the coverage requirements are. Even in cases where a homeowner is not beholden to a lender (if the home is paid off or was gifted as part of an estate), hazard insurance is still a necessity.
Then a damaging event occurs, the homeowner will be 100% liable for any damage that occurs to the home – even if it is a total loss. Renters do not need hazard insurance.
Renter’s insurance covers any damage or theft of a tenant’s personal property, which is not covered by the landlord (homeowner’s) insurance policy.
In a rental situation, the landlord is responsible for holding a hazard insurance policy instead. The renter only needs to worry about insuring their personal property.
How Much Hazard Insurance Do You Need?
You might need a different amount of hazard insurance coverage than a neighbor down the street. How? The amount of hazard insurance coverage you need is based on the amount that your home and related structures are worth.
That is, the amount it would take to replace the entire thing if a severe weather event destroyed it, and it was considered a “total loss.” This doesn’t mean it’s the same amount you paid for the home, or that it’s precisely what the home is worth today.
This estimate is based purely on materials and structural components, plus the cost of labor required to make the needed repairs, builds, and replacements. The amount of hazard insurance you need isn’t related to the real estate market value at all.
The positive thing is that if anything changes about your home – you add a structure that would increase the overall value and amount the policy would need to pay out if it were lost – you can update your policy the next year to reflect those new amounts.
Hazard Insurance: Coverage for the Worst Case Scenario
As a responsible homeowner, you want to make sure you not only have the minimum required coverage for your home, but as much coverage as you can afford.
You can find affordable homeowner’s insurance policies that cover much of the severe weather, theft, and other types of damage we outlined in this guide.
Hazard insurance, on average, costs around $1,200 per year. Considering that it is the safety net in the event the worst case scenario happens – a total loss of your home – that’s a reasonable cost.
The average catastrophic flood insurance policy costs about $540 per year, and the National Flood Insurance Program says just one inch of floodwater inside the home during a flood or hurricane event causes about $7,800 of damage.
These premium costs should be looked at as an essential, necessary part of homeownership. You work hard to take care of your home and have put a lot of work, time, and memories into making it yours. Don’t let a disaster scenario rob you of the place you call home.
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