Do you need hazard insurance?

If you have a mortgage, your lender will require you to have some amount of hazard insurance — another term for homeowners insurance. Even if you own your home outright, you’ll probably still want this coverage to protect your financial investment.

Here’s what you need to know about hazard insurance, including what it covers and how much you need.

• What is hazard insurance?
• What hazard insurance covers
• What hazard insurance doesn’t cover
• Are hazard insurance and homeowners insurance the same thing?
• How much hazard insurance do you need?

What is hazard insurance?

Hazard insurance is a type of insurance coverage that protects the structure of your home. It’s typically part of a standard home insurance policy and is often called dwelling coverage.

When you have hazard insurance on your home, your policy will cover the costs to repair damage it sustains due to covered perils — events that cause damage — such as certain natural disasters, weather events, theft, and vandalism.

What hazard insurance covers

The exact events your hazard insurance covers depends on your insurance carrier and the type of homeowners insurance policy you have. If you’re unsure, you can check your policy documents or contact your insurer.

Generally, hazard insurance will cover any damage done to your home’s structure due to the following:

Keep in mind that even if a covered event occurs, you’ll still need to pay your policy’s deductible before your hazard insurance will kick in. Once you’ve met the minimum deductible, your insurer will cover the rest of the repair costs up to your policy limits.

What hazard insurance doesn’t cover

Hazard insurance covers many things, but it won’t cover everything.

Since it strictly protects your home’s structure, it won’t cover liability, so if someone injures themselves on your property, hazard insurance won’t help. However, the personal liability coverage in your home insurance policy will cover you in that instance.

Hazard insurance also typically won’t cover:

• Flooding
• Earthquakes
• Sinkholes
• Landslides

You can typically purchase separate flood insurance and earthquake insurance policies, or add these on to your existing policy with a rider. Depending on where you live and how at risk your home is for these events, your mortgage lender may actually require you to buy a flood insurance policy when you buy your property.

Are hazard insurance and homeowners insurance the same thing?

Is hazard insurance the same as homeowners insurance? Yes and no.

They aren’t separate policies, and you can’t purchase hazard insurance on its own. Instead, hazard insurance is part of a standard homeowners insurance policy. It’s often referred to as dwelling coverage, since it protects the structure of your home.

In addition to hazard coverage, homeowners insurance policies also generally include the following coverages:

• Other structures coverage — This protects detached structures on your property, such as fences and gazebos.
• Personal property coverage — This coverage protects your personal belongings.
• Loss of use coverage — Also called additional living expense coverage, this covers things like hotel stays and meals if your home becomes uninhabitable due to a covered peril.
• Personal liability coverage — This helps if someone injures themselves on your property or you accidentally damage someone else’s property.
• Medical payments coverage — This covers medical bills if someone injures themselves on your property.

How much hazard insurance do you need?

When it comes to hazard insurance, there’s no hard-and-fast rule for the amount you need. If you’re financing your home purchase, your lender may have a minimum requirement, so be sure to find out what that is. Remember that your lender may require you to buy additional policies (like flood insurance) if you’re in a high-risk area.

Ideally, you want enough hazard insurance to cover the full replacement cost for your home should a disaster occur. You should consider your budget (how much you can afford for your home insurance premium) and the size of your emergency fund when determining how much coverage to purchase.

If you’re not sure what’s best for your situation, talk to an insurance agent. They can help you determine the best coverage for your budget and risk tolerance.