What Is Hazard Insurance?

This coverage for the physical structure of your home is a standard part of a homeowners insurance policy.

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Imagine that you’ve had an offer accepted on the house of your dreams and you think you’re ready to close. Suddenly, your lender demands to see proof that you have hazard insurance.

What do you do? You knew that you would have to get homeowners insurance as part of the mortgage closing process, but hazard insurance too?

Don’t worry. Chances are, you’re already covered.

What is hazard insurance?

Hazard insurance is the part of a homeowners insurance policy that covers damage to the physical structure of your house from fire, hail and other disasters. This type of insurance generally can’t be purchased on its own.

Lenders typically use the term "hazard insurance" to refer to coverage for the structure of your home. They want to ensure that their investment is protected, so they will often require you to have a certain amount of coverage before approving your mortgage.

Is hazard insurance the same as homeowners insurance?

Not exactly. Hazard insurance is another name for dwelling coverage, which is one part of a homeowners policy. Standard home insurance also covers other things, such as your personal belongings and additional living expenses if you need to move out of your home during covered repairs.

Though the two types of coverage aren’t identical, purchasing a homeowners policy will usually satisfy your lender’s hazard insurance requirement.

What does hazard insurance cover?

Hazard insurance pays for damage to your home from certain causes such as fire, burst pipes and heavy snow. Most homeowners policies cover the structure of your home on an “open perils” or “all risks” basis, which means every cause of damage is covered unless it’s specifically excluded in your policy.

For example, a standard homeowners policy usually won’t cover:

  • Flood.

  • Earthquake.

  • Normal wear and tear.

  • Sewer backup.

  • War or nuclear action.

  • Intentional damage by the homeowner.

You may be able to add coverage for some of these perils. For example, you can buy flood insurance through the federal government or other private providers (and depending on where you live, your lender might require it).

Some homeowners have a more limited type of hazard insurance that covers their house on a “named perils” basis. With these policies, your home’s structure is covered for only perils that are listed in the policy. These perils may include:

  • Fire or lightning.

  • Windstorm or hail.

  • Vandalism.

  • Theft.

  • Smoke.

  • Explosions.

  • Riots.

  • Damage from aircraft.

  • Damage caused by vehicles.

  • Volcanic eruptions.

  • Falling objects.

  • Weight of ice, snow or sleet.

  • Water overflow or discharge from household systems like plumbing, air conditioning and appliances.

  • Freezing of those same household systems.

  • Sudden damage from a power surge.

  • Sudden tearing, cracking or bulging of a hot water system, steam system, air conditioning or fire-protective system.

Hazard insurance coverage generally comes with a deductible, or an amount you’re responsible for in case of damage. Say you’ve chosen a $1,000 deductible. If a thunderstorm causes $5,000 of damage to your roof, your insurance company would pay $4,000, and you’d cover the rest.

How much hazard insurance do you need?

You’ll generally want to buy enough hazard insurance to cover the full cost of rebuilding your home if it’s destroyed.

Keep in mind that this figure, known as the “replacement cost” of your home, isn’t necessarily the same as the property’s purchase price. Instead, it’s based on the estimated cost of materials and labor needed to rebuild the house to its pre-disaster condition. Your insurer can help you estimate the correct amount.

For a little extra peace of mind, consider one of these optional types of coverage:

  • Extended replacement cost. If a hurricane or blizzard causes widespread damage in a certain region, local construction costs often go up due to higher demand — which means your replacement cost coverage might not be enough. Extended replacement cost coverage offers a buffer against such shortfalls, paying out anywhere from 10% to 50% above your coverage limit if costs are higher than expected.

  • Guaranteed replacement cost. Going a step further, guaranteed replacement cost coverage pays as much as necessary above your dwelling coverage limit to rebuild your home.

How much does hazard insurance cost?

Because it’s part of your homeowners insurance coverage, hazard insurance doesn't cost extra if you already have a standard policy. The average cost of homeowners insurance is $1,585 per year, according to NerdWallet’s rate analysis, but your cost may differ depending on where you live, the size of your home and how much coverage you need.

Adding coverage for perils not typically included in a homeowners policy — such as flooding or earthquakes — will cost extra.

How to get hazard insurance

Standard homeowners policies, which include hazard insurance, are available from most major insurers. You can look for home insurance quotes online or ask an independent insurance agent to shop around on your behalf. To get the best price, it’s smart to compare quotes from at least three insurers.

Not sure where to start? Consider NerdWallet’s list of the best home insurance companies.

Methodology

NerdWallet averaged rates for 40-year-old men and women from insurance companies in every ZIP code across all 50 states and Washington, D.C. Sample homeowners were nonsmokers with good credit living in a single-family, two-story home built in 1971. They had a $1,000 deductible and the following coverage limits:

  • $300,000 in dwelling coverage.

  • $30,000 in other structures coverage.

  • $150,000 in personal property coverage.

  • $60,000 in loss of use coverage.

  • $300,000 in liability coverage.

These are sample rates generated through Quadrant Information Services. Your own rates will be different.

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