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Key Takeaways
- “Hazard insurance” is what bankers and mortgage lenders call the subsection of your home insurance policy that covers perils such as fire or wind damage. Insurance companies do not commonly use this term, but it describes part of standard homeowners insurance.
- Mortgage lenders typically require a certain amount of hazard insurance coverage as a condition of your home loan.
- Hazard insurance doesn’t usually cover damage from floods, earthquakes, and everyday wear and tear.
Hazard insurance is not a separate type of policy. It just refers to the part of your homeowners insurance policy that protects your house from perils like fire, hurricanes, lightning, vandalism, theft, wind, sleet, hail and severe storms. The term has been popularized by mortgage lenders, but you probably won’t hear most insurance providers use it.
While hazard insurance isn’t legally mandated, it’s required by most banks and lenders as a condition to qualify for a mortgage. When your lender requires hazard insurance, they want to make sure you have that dwelling and other structures coverage, which means purchasing home insurance.
Home insurance and hazard insurance aren’t completely interchangeable terms, since home insurance covers more than just the physical structures on your property. A standard homeowners insurance policy also includes coverage for personal property, loss of use, guest medical expenses, and personal liability.
Mortgage lenders will likely require a certain amount of hazard insurance in your homeowners insurance policy. You must have enough hazard insurance to cover your home’s replacement cost if the structure is damaged or destroyed and needs to be repaired or replaced. Note that required coverage varies based on the market value of your home, which accounts for construction costs and labor.
- Purchasing a new home: When you buy a home, you’ll pay the premium for your first year of homeowners insurance as part of the closing costs. However, you can also pay your premium directly to your insurer; just ensure you have a receipt to provide at closing.
- Using an escrow account: If you have an escrow account, the monthly insurance premiums will be included in your mortgage payments and held in the account until the following year, when you renew the policy.
- Without an escrow account: If you don’t have an escrow account, depending on your insurer, you can pay your premium monthly, quarterly, semiannually, or annually.
Hazard insurance typically covers the following, but can vary per insurer:
- Fire, storm, hail and lightning
- Smoke and gas explosions
- Theft and vandalism
- Water damage (excluding flood damage)
- Falling objects
Depending on where you live, your mortgage lender may require you to purchase additional coverage, like flood or wind insurance.
Hazard insurance doesn’t cover:
Homeowners who have financed a home are typically required to carry hazard insurance by their mortgage lender. However, most of the time, your homeowners insurance policy likely fulfills the coverage amount needed for hazard insurance.
Note that if you don’t carry enough hazard insurance, your mortgage lender can add force-placed insurance to your monthly mortgage.
Purchasing homeowners insurance and carrying hazard coverage is a wise choice, even if you don’t have a mortgage, as it protects your property against perils.
The cost of hazard insurance varies depending on several factors, including:
- The location, size and age of your home
- The perils the policy covers
- The deductible(s)
- Your credit-based insurance score
Hazard insurance isn’t a separate type of insurance. This phrase usually describes the dwelling coverage of your homeowners insurance policy, since dwelling coverage protects the structure of your home from damage inflicted by covered hazards.
Homeowners insurance includes not only dwelling protection but also coverage for other structures, personal property, personal liability, guest medical payments, and loss of use.
To get hazard insurance and satisfy your mortgage lender’s requirements, you usually just need to buy a home insurance policy. It may be best to speak with an insurer or insurance agent, as they can help you determine your coverage needs and provide you with a quote. With many insurers, however, you also have the option of getting a quote online. Whichever way you choose to do it, make sure you compare home insurance quotes from a minimum of three different companies.
If you finance your home, you’ll likely be required to have insurance before closing on your home. Your first year’s premium may be included in your closing costs or paid directly to your insurer when you buy the policy. In this case, you must provide a receipt at closing.
Hazard insurance isn’t legally mandated, but your mortgage lender will likely require you to purchase a homeowners insurance policy, which typically meets the hazard coverage requirement.
Hazard insurance isn’t tax-deductible. However, if you use your home for a business or rental, you may be able to deduct your homeowners insurance, which includes hazard insurance, on your personal taxes.
Hazard insurance doesn’t have a separate premium because it’s included in your homeowners insurance policy. So, when you pay your homeowners insurance premium, you’ll pay for your hazard coverage.
