What Is Hazard Insurance?

Hazard insurance is a crucial portion of your home insurance policy that offers the bulk of protection against perils — or hazards — that may occur. It’s important to understand what exactly hazard insurance covers, what it doesn’t cover, and how it works in order to make sure you have appropriate coverage levels for your home. 

Here’s what you need to know about hazard insurance and how it protects your home.

What is hazard insurance?

Hazard insurance is the part of a standard home insurance policy that offers financial protection for your home against fire, hail, lightning, hurricanes, and other natural disasters.^[1] Some policies may provide coverage against rioting or civil unrest, as well. Hazard insurance is beneficial because your insurance company will help cover the repair and replacement costs that qualifying events cause. The amount your company will cover depends on the type of policy you purchase, as well as the value of your home.

What does hazard insurance cover?

Most hazard policies cover perils that include fire, earthquakes, wind damage, theft, and vandalism. Your policy likely covers damages to the structure of your home, property, and personal belongings. Some policies may also cover additional living expenses for when your home is uninhabitable during repairs and you need to stay in a hotel.^[2]

What does hazard insurance not cover?

Most standard home insurance policies don’t cover flooding or earthquake damage.^[2] Some policies may require purchasing an additional policy for hurricane, flood, or earthquake damage if you live in a high-risk area. Typical hazard policies don’t cover basic wear and tear.

Is hazard insurance the same as home insurance?

Hazard insurance is part of a standard home insurance policy, though you may hear people refer to hazard insurance as their entire policy.^[1] However, homeowners insurance has multiple components, including hazard protection.

What does a homeowner policy include?

Your homeowner policy includes several elements, depending on where your home is and its value. Standard policies have hazard coverage, which is coverage for your property against perils, as well as protection for your personal property, liability coverage, and coverage for additional living expenses.^[2]

How does hazard insurance affect your mortgage?

When you purchase a home with a loan, your lender will likely require a hazard policy, at minimum. Since hazard insurance protects the home’s structure, it also protects the lender against potential financial loss in a disaster. Many lenders only require a hazard policy, so you could save money by skipping other coverages.^[3]

It’s important to note that if you have less than 20% equity on your home, your lender will likely require private mortgage insurance, which protects the loan, in addition to your homeowner insurance.

States generally don’t legally require homeowners to have any insurance on their property. Once you pay off your mortgage, you could technically remove your hazard policy. However, it’s often an unwise financial decision, as you would be on the hook for any financial loss from damages to, or injuries on, your property.

How much hazard insurance do you need?

The amount of insurance you need for your home will vary. First, you’ll need to consider whether you want to base your coverage on actual cash value or replacement cost. Here are the two options:

• Actual cash value: This is the current value of your home, taking into account depreciation. The insurance company factors in age and wear and tear when determining the payout value. For example, if your porch is destroyed during a storm, the insurance company would pay to replace the porch minus any depreciation.

• Replacement cost: If you choose a policy with replacement cost coverage, the insurance company will reimburse you for replacing the damaged item at its current market value. For example, if your porch is damaged in a storm, the insurance company would pay to replace the porch with similar materials at the current market price.^[4] Most policies come with replacement cost coverage for the home’s structure.

When determining how much hazard insurance you need for your property, some common factors to consider are local construction costs and the size of your property. Multiply the square footage of your property by the average local per-square-foot construction costs. For example, 2,000 square feet × $130 per square foot = $260,000. Many online tools provide a rough estimate of local construction costs.^[5]

In addition, you should consider:

• The types of materials used for roof and windows

• On-site structures, like a garage, barn, shed, or pool

• Any custom features

• Updates and remodels

• Exterior materials

• The home’s age

• Ease of access to similar materials needed to repair special features in the home

If you plan to stay in your home for many years, you may consider adding an inflation guard rider to protect against rising material and construction costs.

How much does hazard insurance cost?

The cost of hazard insurance will vary depending on location, home style, property size, the home’s age, and chosen coverage types. The average annual cost of homeowners insurance is $2,724, according to Insurify data.

Can you purchase a separate hazard insurance policy?

You can buy additional hazard insurance, particularly additional coverage for earthquakes, hurricanes, and floods. However, insurance companies typically offer hazard insurance as part of a broader insurance policy.

Hazard insurance FAQs