Hazard Insurance vs Home Insurance: What’s the Difference?
Most mortgage companies will require you to purchase hazard insurance before approving you for a home loan. If you’re a new homeowner, you might be wondering what hazard insurance is and how it differs from a standard homeowners insurance policy. In this post, we’ll cover everything you need to know.
Contact us today to speak to a KSA Insurance specialist, or request a quote to find out how easy it can be to protect your home and your family from any eventuality.
What is Hazard Insurance?
Typically, when mortgage companies refer to hazard insurance, they’re referring to homeowners insurance, which includes coverages for a variety of common hazards. Hazard insurance is an essential coverage that protects your home from damage caused by common perils. While homeowners insurance includes other coverages, lenders want to ensure you at least have coverage that protects your home’s structure from damage.
Hazard insurance refers to the portion of your homeowners insurance policy that protects your home’s structure from perils that may cause damage. Typically, it does not cover personal injuries. Your homeowners insurance declarations page will list all of the perils that your home is protected against.
What Does it Cover?
Hazard insurance coverage varies depending on the covered perils listed in your homeowners insurance policy. Common hazards covered include:
- Fires
- Lightning
- Hail
- Windstorms
- Theft
- Vandalism
- Smoke
- Fallen Trees
It’s important for homeowners to review their policy’s declarations page to better understand what types of hazards their home is protected against.
Open Perils vs. Named Perils
Homeowner’s policies typically come in one of two forms: open perils policies or named perils policies.
- Open perils policies cover all hazards except for those listed as exclusions in your homeowners insurance policy. These policies are typically more expensive as they offer more comprehensive coverage for homeowners.
- Named perils policies only cover hazards that are specifically named in your insurance policy. These policies are generally cheaper than open perils policies as they protect against fewer hazards.
What is Not Covered by Hazard Insurance?
While coverage varies by policy, there are several perils that are typically not covered by hazard insurance, including:
- Floods
- Damage caused by neglect
- Damage caused by lack of maintenance
- Earthquakes
To protect against hazards like floods, homeowners will have to purchase policies separately, like a dedicated flood insurance policy. Depending on the area your home is located in, it may or may not be necessary to purchase these additional coverages.
How Reimbursement Works
When your home is damaged by a covered peril, you will need to file an insurance claim for reimbursement. Before your insurance covers any damages, you will have to pay your deductible. After paying your deductible, your insurance company will pay the agreed-upon settlement.
Most insurance policies use one of two methods to determine how much reimbursement you are eligible to receive: actual cash value or replacement cost value.
- Actual cash value policies reimburse you for the amount your personal property or home was worth at the time the damage occurred. These policies are often cheaper as they offer smaller reimbursements.
- Replacement cash value policies reimburse you for the amount it would cost to replace your home or personal property. These policies are more expensive but ensure that all of your property will be replaced in the event that it is damaged or destroyed.
Hazard Insurance vs. Homeowners Insurance
Hazard insurance is part of your homeowner’s insurance policy. It is not a separate coverage. The reason hazard insurance is specifically named by mortgage lenders is because they want to ensure you have the minimum coverage needed to protect your home against common disasters.
Homeowner insurance policies are typically made up of several coverages, including:
- Dwelling coverage: Protects your home’s structure against covered perils.
- Other structures coverage: Covers your home’s detached structures (i.e. your garage, shed, deck, etc.)
- Personal liability coverage: Covers expenses if a guest is injured on your property and takes legal action against you.
- Loss of use coverage: Helps pay for additional living expenses if your home becomes uninhabitable due to damage caused by a covered event.
- Personal property coverage: Covers your personal property if they are damaged or stolen.
- Medical payments coverage: Helps pay for medical expenses when someone is injured on your property.
Be sure to review your policy for a complete list of coverages.
Request a Quote
If your mortgage lender requires you to purchase hazard insurance, they are referring to the provision of your homeowner’s insurance policy that protects your home’s structure against damages caused by common hazards.
At KSA Insurance, we help homeowners in South Carolina and across the southeastern United States find affordable, comprehensive insurance policies that protect their homes and personal property. Contact us today to learn more about hazard insurance and request a custom quote.
