What Does Hazard Insurance Cover?

Hazard insurance covers the cost of repairing or rebuilding your home’s structure if it’s damaged by an emergency that your homeowners insurance policy covers.

Daria Kelly Uhlig
Daria Kelly Uhlig
  • Licensed Realtor with 10+ years in personal finance content

  • Contributor to Nasdaq and USA Today

Daria is a licensed Realtor and resort property manager specializing in personal finance, real estate, and insurance topics. In her spare time, she practices photography.

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Chris Schafer
Edited byChris Schafer
Chris Schafer
Chris SchaferSenior Editor
  • 15+ years in content creation

  • 7+ years in business and financial services content

Chris is a seasoned writer/editor with past experience across myriad industries, including insurance, SAS, finance, Medicare, logistics, marketing/advertising, and many more.

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Updated February 7, 2024

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Hazard insurance pays to repair or rebuild your home after damage from an unexpected incident, such as a fire or severe storm.[1] 

This may be the best way to protect your investment in your home while you have a mortgage loan on the property. It also protects your lender’s investment. That’s why mortgage companies generally require borrowers to carry hazard insurance throughout the entire term of their home loan.

Here’s what you need to know about hazard insurance, and how comparing home insurance quotes can help you find affordable coverage.

Quick Facts
  • Hazard insurance is a vital part of your home insurance policy.

  • How much hazard insurance you need depends on how much it would cost to rebuild your home.

  • The average cost for $300,000 in coverage is less than $2,000 per year.

Is hazard insurance the same as homeowners insurance?

Hazard insurance comprises the dwelling part of your homeowners insurance policy, which covers the structure of your home.[2]

Homeowners insurance, including the hazard coverage, covers damage and losses resulting from unexpected events called perils and hazards. While some insurance companies use the terms interchangeably, others refer to perils as “events that directly cause damage” and hazards as “situations that can lead to perils.” Fire, for example, is a peril. Severe weather is a hazard that can lead to a peril, such as a lightning strike or flooding.

Common home insurance perils

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Why hazard insurance is required

Mortgage lenders require borrowers to have hazard insurance because, without it, the owner might not be able to afford rebuilding costs if a covered peril damages or destroys the house.

In these cases, you’ll have to provide proof of hazard insurance before you can close on your mortgage loan. And if you make “PITI” mortgage payments — principal, interest, taxes, and insurance — to your lender, you’ll pay at least part of this annual premium into an escrow account at closing. Your lender will then pay your homeowners insurance company, as well as your property taxes, from these escrowed funds.

Keep in Mind

It’s important to avoid any lapse in coverage before you’ve repaid your mortgage loan in full. If you have a lapse, the mortgage lender can obtain its own coverage and charge you for the premium. This coverage is more expensive than normal homeowners insurance, and it provides no coverage for you.

What hazard insurance covers

Most hazard insurance covers losses and damage to the structure of your home from a standard list of 16 perils. These perils include common occurrences, such as fire, lightning strikes, falling objects, smoke, wind, hail, vandalism, theft, certain types of water damage, and damage from the weight of snow. Less common perils, such as explosions, riots, and damage from aircraft and volcanic eruptions, are also included.

However, your home’s structure isn’t the only thing your homeowners insurance covers. In fact, homeowners policies provide four major types of coverage:

  • illustration card https://a.storyblok.com/f/162273/x/001e1e2a4c/legal-protection.svg

    Liability

    Liability insurance protects you if someone sues you because of bodily injury or property damage that you or a member of your household causes.

  • car in carage

    Dwelling

    Dwelling coverage is the hazard portion of your homeowners insurance. Many policies also cover other buildings, such as a shed or detached garage, if it’s located on your property.

  • illustration card https://a.storyblok.com/f/162273/100x100/32ed42213e/personal-property.svg

    Personal property

    Personal property coverage pays for losses and damage to your personal belongings resulting from a covered peril. Insurance companies usually limit this coverage to 50% to 70% of your dwelling coverage, according to the Insurance Information Institute.[3]

  • illustration card https://a.storyblok.com/f/162273/100x100/c61ab9bfc2/loss-of-use-2.svg

    Additional living expenses

    Additional living expenses coverage pays your living expenses if damage to your home, caused by a covered peril, forces you to live elsewhere while it’s repaired or rebuilt.

What hazard insurance doesn’t cover

Homeowners insurance in general, and hazard insurance in particular, has exclusions you should be aware of.

Flood damage, for example, generally requires a separate policy. You can purchase flood insurance through the United States government’s National Flood Insurance Program or from some private insurance companies.

Earthquake damage is also excluded from coverage under standard homeowners insurance policies. If you’re in a high-risk area for earthquakes, you can add this coverage as an endorsement to your homeowners policy. You can also purchase coverage as a separate insurance product or, in California, purchase it through an insurance agency that partners with the California Earthquake Authority.[4]

Other types of earth-related perils, like sinkholes and mudslides, are also excluded from coverage under standard policies.[5]

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How much hazard insurance costs

Hazard insurance is part of your homeowners insurance policy, so the cost of that coverage is included in your home insurance costs. How much you’ll pay depends on many factors, including how much dwelling coverage you purchase.

Here are the national average annual costs of homeowners insurance by dwelling coverage amount:

  • $100,000: $847

  • $200,000: $1,300

  • $300,000: $1,751

  • $400,000: $2,191

  • $500,000: $2,665

Other factors affecting the cost of hazard insurance include the cost to rebuild your home, your ZIP code, your coverages and home insurance deductible, area access to fire and other emergency services, and whether you have smoke detectors and other safety equipment installed in your home.

You should also expect to pay higher rates if you have poor credit or a history of filing insurance claims.

Your home insurance company also affects the price you pay for hazard insurance. Note that a company offering higher home insurance rates for one coverage level might be less expensive at another coverage level.

This table illustrates the average rates for hazard insurance offered by top insurers, based on coverage level.

Insurance Company$150,000$300,000$500,000
Allied$1,345$2,354$3,804
Allstate$1,081$1,607$2,305
American Family$973$1,360$1,867
Armed Forces Insurance$991$1,292$1,755
ASI$1,031$1,583$2,451
Auto-Owners$1,128$1,658$2,363
Chubb$967$1,804$2,806
Country$1,714$2,859$4,409
Encompass$1,542$2,442$3,773
Erie$795$1,342$2,002
Farmers$1,100$1,767$2,862
Foremost$1,113$2,158$3,620
Metropolitan$1,495$2,642$4,191
Nationwide$1,111$1,908$3,002
State Farm$1,064$1,692$2,457
Travelers$965$1,555$2,431
United P&C$971$1,698$2,661
USAA$1,100$1,643$2,283
Westfield$790$943$1,119
All quotes may vary based on individual profiles.

How much hazard insurance do you need?

Determining the amount of hazard insurance you need is perhaps the most important part of selecting insurance.

It’s a good idea to consider a worst-case scenario — the total destruction of your home — and the cost to rebuild it when deciding how much insurance to buy.

A local contractor can give you a general price per square foot for the size and style of home you have. Multiply that by your home’s square footage to get a rough idea of building costs. Then, reach out to an insurance agent to customize that figure according to your home’s features and your budget.

Another way to customize your quote is to explore the various types of coverage companies offer.

Here’s a brief look at three.

Extended replacement cost

Extended replacement cost coverage pays to rebuild your home to the way it was before the damage, up to a certain percentage above the coverage limits.

Guaranteed replacement cost

Guaranteed replacement cost is similar to extended replacement cost except that the coverage is not capped. This makes guaranteed replacement cost coverage a good hedge against soaring construction costs following a natural disaster.

Actual cash value

Actual cash value coverage pays up to the depreciated value of your home. It’s a lower level of coverage that can leave you with out-of-pocket expenses because it pays you for what your items are worth now, not their original purchase price.

Hazard insurance FAQs

Hazard insurance can mean the difference between having coverage for the majority of your loss after a covered peril and being stuck paying out of pocket. You can learn more about hazard insurance with the answers to these frequently asked questions.

  • Can you remove hazard insurance from your mortgage?

    Hazard insurance is actually not on your mortgage — it’s a policy you purchase to protect your investment in your home. However, your mortgage lender will require you to carry it until your mortgage is paid off.

  • How much does home insurance cost?

    Insurance companies consider the size, location, and characteristics of your home when calculating homeowners insurance costs. As such, rates differ from one homeowner to the next. Your claims history and your credit can also be major factors. However, the average cost for $300,000 in dwelling coverage is $1,751 per year, according to Insurify data.

  • Do you need hazard insurance on your mortgage?

    Hazard insurance insures your home and is completely separate from your mortgage. However, your mortgage lender will require that you have it before you can close on your loan, and you’ll be required to maintain coverage until you’ve repaid your loan entirely.

Sources

  1. Consumer Financial Protection Bureau. "What is homeowner's insurance? Why is homeowner's insurance required?."
  2. Cornell Law School. "Hazard Insurance."
  3. Insurance Information Institute. "Homeowners Insurance Basics."
  4. NAIC. "Earthquake Insurance."
  5. Insurance Information Institute. "Sinkholes and Insurance."
Daria Kelly Uhlig
Daria Kelly Uhlig

Daria Uhlig is a freelance writer and editor with over a decade of experience creating personal finance content. Her work appears on USA Today, Nasdaq, MSN, Yahoo Finance, Fox Business, GOBankingRates and AOL. As a licensed Realtor and resort property manager, she specializes in real estate topics, including landlord, homeowners and renters insurance. In her spare time, Daria can be found photographing people and places on Maryland's Eastern Shore. Connect with her on LinkedIn.

Chris Schafer
Edited byChris SchaferSenior Editor
Chris Schafer
Chris SchaferSenior Editor
  • 15+ years in content creation

  • 7+ years in business and financial services content

Chris is a seasoned writer/editor with past experience across myriad industries, including insurance, SAS, finance, Medicare, logistics, marketing/advertising, and many more.

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