Hazard Insurance vs Homeowners Insurance: What’s the Difference?

Homeowners can encounter terms they might not be familiar with to protect their home. Insurance is a good example. 

You have several different insurance types to choose from as a homeowner, and each can protect you in different ways.

Consider hazard insurance vs homeowners insurance. 

You might be asking yourself:

What is hazard insurance? 

Is homeowners insurance the same as hazard insurance?

How do I choose what’s best for my family and me?

After all, your home is more than a roof over your head. Here’s what you need to know to protect it and your family.

What is hazard insurance vs homeowners insurance?

Spoiler alert: hazard insurance is virtually the same as homeowners insurance. 

It can seem confusing to have the same insurance product go by different names, but rest assured…

When comparing homeowners insurance vs hazard insurance?

They’re the same thing.

When you buy a house and the mortgage company requires you to have hazard insurance for your home, they are telling you to get a homeowner’s insurance policy

As part of your policy, hazard insurance protects the structure of your home against “hazards” like fire, hail, lightning, theft, vandalism and fallen trees.

What is homeowners insurance? 

Many homeowners can’t afford to cover large losses out-of-pocket. That’s where homeowners insurance comes in.

In exchange for a premium, homeowner’s insurance covers your home, personal property and assets combined if disaster should strike. 

It protects against property damage, burglary or a lawsuit if someone injures themselves on your property. 

What does homeowners insurance cover?

Your homeowner’s insurance policy is divided into distinct components. Each protects a separate area and covers you in a different way:

  • Dwelling: The structure of your home, the roof and foundation.
  • Other structures: Items that are detached, such as your garage, fence or shed.
  • Personal property: Your personal belongings inside and outside your home, like furniture, electronics and lawn and garden tools.
  • Loss of use: Additional expenses that may arise if you can’t live in your home while damage is being repaired.
  • Personal liability: Financial protection if someone is injured in your home and files a lawsuit against you.
  • Medical payments: Pays for minor medical expenses if a guest is injured in your home.

A word of caution:

Standard homeowners policies can cover water damage.

But it does not cover flood damage. 

You may need a separate flood insurance policy to protect your home from flooding.

What is hazard insurance?

Depending on the lender you use to secure financing for your home, you may be asked to get hazard insurance.

Hazard insurance generally refers to the part of your homeowners policy that covers the structure of your home.

It’s not a separate type of insurance.

But there’s a catch.

You can’t buy just hazard coverage. It is only purchased as part of a standard homeowners policy.

Therefore, if your lender requires hazard or dwelling coverage, a homeowners policy will be sufficient.

What does hazard insurance cover on a home?

Generally, hazard insurance covers damage from natural disasters, burglary, theft and other risks.

However, there are different types of policies: named perils and open perils.

And the type you have determines which hazards are covered.

Named perils coverage only protects against the specific hazard listed in the policy.

They’re typically less expensive because it may not include all types of damage that can happen to your home.

It might be nice to save money on homeowners insurance, but you’re leaving yourself open to more risk.

Open perils is fundamentally different.

Instead of listing what is covered, an open perils policy states explicitly what is not covered.

It generally covers more risks that could damage your home and can be more expensive than a named perils policy.

Do I have to pay hazard insurance on my mortgage?

Are you wondering, “When can I stop paying hazard insurance?”

Unless you have the money available to pay for a home with cash up-front, you must follow your mortgage lender’s requirements.

And that typically includes purchasing a homeowners insurance policy.

At the very least, your lender wants to make sure your property’s structure is protected with hazard insurance. 

However, purchasing a home is a significant investment. You should consider a homeowners policy to cover your home’s structure as well as your personal belongings.

How much does hazard insurance vs homeowners insurance cost?

The cost of homeowners insurance can vary by location and type of home. Generally, the greater the risk of damage, the more your premium will cost.

A few primary factors help determine how much you pay for homeowners insurance vs hazard insurance:

  • Your home’s age and value
  • The materials that make up your home
  • Your chosen policy type and coverage limits
  • Your policy deductible amount
  • Security features of your home
  • Your home’s location

Remember hazard insurance won’t be an additional cost on top of homeowners insurance. That’s because hazard insurance is one component of your standard homeowners policy.

Hazard insurance vs homeowners insurance: filing a claim

When filing a claim, you’ll have to pay your policy’s deductible. The deductible is the amount that you must pay out-of-pocket before your insurer kicks in to pay for the rest.

But wait, there’s one important question…

Will your policy be enough to cover the cost of repair or replacement?

The answer is it depends.

How much your policy will pay depends on the reimbursement provision in your policy. It’s likely to be actual cash value (ACV) or replacement cost value (RCV).

  • Actual cash value: Pays the item’s actual value rather than what it would cost to replace the item with a new version. Premiums are often less expensive, but it generally offers a smaller refund for damages.
  • Replacement cost value: Covers the cost to replace something with a brand-new version. It’s typically more expensive than ACV, but it’s the safest option to protect you financially if you have a loss.

Keep in mind that RCV insurance is usually the default option. If cost is a concern, ask your agent about switching to an ACV policy.

Key takeaways: hazard insurance vs homeowners insurance

Your home is more than a collection of boards and drywall. It’s where your loved ones are and where memories are made. 

That’s why you want to have the coverage you need to protect what matters most.

When considering hazard insurance vs homeowners insurance, talk to your lender and insurance agent to understand your options and the costs involved.

*While we make every effort to keep our site updated, please be aware that “timely” information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.