Is Hazard Insurance the Same as Homeowners Insurance?

What Is Hazard Insurance?

Hazard insurance, also called dwelling or structure coverage, is the part of your home insurance policy that pays to repair or replace your home's structure if it's damaged by a covered loss. Hazard insurance may also cover other structures on your property, such as a detached garage, shed or gazebo, depending on your policy.

What Does Hazard Insurance Cover?

Hazard insurance pays the cost to repair damage to your home's structure caused by risks that are covered in your home insurance policy. The specific risks covered depend on the type of home insurance policy you have: HO-1, HO-2 or HO-3.

HO-1 Policy

A basic or HO-1 policy covers your dwelling against 10 perils:

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Damage caused by aircraft
6. Damage caused by vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Volcanic eruption

HO-2 Policy

Because HO-1 coverage is so limited, many insurance carriers don't sell this type of policy.

A broad, "named perils" or HO-2 policy covers your home's structure against the 10 perils above plus six more:

1. Falling objects
2. The weight of snow, ice or sleet on a structure
3. Water or steam accidentally discharged from a household appliance or a plumbing, heating, air conditioning or fire-protective sprinkler system
4. Freezing of a household appliance or a plumbing, heating, air conditioning or fire-protective sprinkler system
5. Sudden accidental damage from electrical currents
6. Sudden accidental cracking, bulging, burning or tearing apart of a steam, water heating, air conditioning or automatic fire-protective system

HO-3 Policy

A "special" or HO-3 policy, the most common type of homeowners insurance, covers your home's structure against all perils except those that are specifically excluded. Typically, HO-3 policies exclude damage from:

• Floods
• Earthquakes
• War
• Nuclear accidents
• Landslides
• Mudslides
• Sinkholes

Other risks may be excluded; review your policy to see what is and isn't covered.

Here's an overview of typical hazard insurance coverage.

What Doesn't Hazard Insurance Cover?

Hazard insurance doesn't cover risks to your home's structure that aren't listed in your policy or risks that are specifically excluded from coverage. In addition, hazard insurance doesn't cover losses that don't affect your home's structure. These include:

• Damage to or theft of your home's contents, such as appliances, furniture and electronics
• Belongings stolen from a location outside your home like a car or storage unit
• Medical costs if visitors to your home are injured on your property
• Legal defense or award costs if a visitor sues after being injured at your home
• Costs of living elsewhere while your home is repaired or rebuilt after a covered loss

What Is Homeowners Insurance?

In addition to hazard insurance, homeowners insurance usually includes personal property insurance, personal liability coverage and loss of use coverage.

Personal Property Insurance

Personal property insurance pays to replace your belongings if they're stolen, destroyed or damaged by a risk listed in your policy. By default, personal property coverage pays you the actual cash value of your belongings, which may not be enough to purchase comparable new items. At additional cost, you can choose replacement value coverage, which pays to replace your possessions with comparable new ones.

Coverage for certain kinds of property, such as artwork and jewelry, is typically limited, but you can purchase extra coverage.

Personal Liability Insurance

Personal liability insurance helps pay your costs if a visitor to your home is injured and files a lawsuit, or if you or your family members injure another person or their property outside your home. Liability insurance covers legal costs and damages of a lawsuit, as well as medical expenses for the injured person.

Standard home insurance typically includes $100,000 of liability coverage. If that isn't enough to protect your assets, you can purchase more coverage or buy umbrella insurance to extend the limits of your liability insurance.

Loss of Use Coverage

Loss of use coverage pays your extra costs if the insurance company declares your home unlivable during covered repairs. Also called additional living expenses (ALE) coverage, it reimburses costs above your normal living expenses. For example, ALE coverage might help pay for restaurant meals or boarding your pets while you're in a hotel.

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What Does Homeowners Insurance Cover?

Homeowners insurance covers your home's structure, your personal property, your legal liability and temporary living expenses if your home is uninhabitable. Coverage can vary depending on your policy, but home insurance usually pays for:

• Repairing or rebuilding your home's structure after a covered loss, such as a fire or windstorm
• Repairing or replacing other structures on your property, like gazebos or detached garages
• Your legal defense costs and damages if you're sued by a guest injured on your property
• Medical expenses for guests hurt on your property
• Replacing your personal possessions, such as furniture and clothing, after a covered loss
• Temporary expenses if you need to live elsewhere while covered repairs to your home are made

What Doesn't Homeowners Insurance Cover?

Homeowners insurance doesn't cover damage from floods, earthquakes, sinkholes, mudslides, landslides, some types of water damage and any risks specifically excluded in your policy.

Exclusions vary, but in general, homeowners insurance won't cover:

• Earthquake damages
• Damages from a flood
• Damage from mudslides or landslides
• Sinkhole damage
• Damage due to war
• Damage caused by nuclear accidents
• Damage from animals or insects, such as pests
• Water backup from sump pumps, sewers, drains and septic tanks
• Wear and tear to structures or systems
• Damage resulting from neglecting home maintenance

You can purchase stand-alone insurance policies for some of these dangers, such as floods and earthquakes, if you're in an at-risk area.

How Much Does Homeowners Insurance Cost?

Homeowners insurance costs an average of $2,377 a year, according to Insurify. Home insurance premiums are highest in Florida, where residents pay an average of $10,996 annually, and lowest in Vermont, where the average cost is $918 a year.

Several factors impact the cost of homeowners insurance:

• Location: Homeowners in states vulnerable to extreme weather events, such as floods, hurricanes and tornadoes, typically pay more for home insurance. Living in a high-crime area or a region where construction costs are high could also mean higher home insurance premiums.
• Your home's square footage and construction: Larger homes cost more to rebuild, so you'll pay more for home insurance. Premiums may also be higher if your home has unique, expensive features, such as custom-designed cabinetry or high-end materials.
• How much coverage you buy: Increasing coverage beyond standard amounts raises your premiums. You'll also pay more for policy add-ons, such as replacement cost value coverage for your possessions. Purchasing stand-alone coverage, like earthquake or flood insurance, adds to your tab, too.
• Your mortgage: Lenders typically require enough home insurance to pay off your mortgage. This may be less than the amount you'd need to rebuild.
• Your deductible: Your deductible is subtracted from any payout for a claim. For instance, if your $10,000 claim is approved and you have a $1,000 deductible, you'll get a $9,000 payout. Generally, lowering your deductible means higher premiums, and vice versa.
• Claims history: If you or the previous owners of your home filed any claims within the past seven years, insurers may charge you more for home insurance.
• Your credit score: When setting rates, insurers in most states can check your credit-based insurance score. A lower score typically means higher premiums.
• Discounts you qualify for: Common deals on home insurance include discounts for bundling home and auto insurance; discounts for paying your bill upfront, via autopay or paperless billing; discounts for retirees; and discounts for installing safety and security devices in your home. Many membership organizations and employers offer discounts on home insurance for members and employees too.

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The Bottom Line

Hazard insurance is an important part of homeowners insurance coverage, helping ensure you can repair or rebuild your home after a fire, hurricane or other disaster. Costs for home insurance policies are on the upswing, but a good credit-based insurance score could help lower your premium.

Since your credit-based insurance score incorporates many of the same factors as your consumer credit score, reviewing the latter can indicate how insurance carriers may view you. Practicing good financial habits like paying bills on time and reducing credit card debt can help lift both types of scores, potentially saving money on home insurance.