What Is Hazard Insurance?

When shopping around for your first home, a mortgage lender will require hazard insurance. This type of coverage extends to certain perils and helps with related repairs or replacement costs. If you’re a first-time homebuyer, learn more about hazard insurance.

The Role of Hazard Insurance

Also known as dwelling coverage, hazard insurance pertains strictly to damage from outside factors to the structure of your home. Homeowner’s insurance typically includes:

  • Liability coverage, in the event someone gets injured on your property.
  • Coverage for other structures on your grounds, like sheds and garages.
  • Personal property coverage for your belongings.
  • Living expenses coverage, in the event your dwelling is no longer livable and you need to seek temporary housing.

With hazard insurance, you will pay a deductible when you file a claim and your carrier pays for the rest, within policy limits. You can work with your carrier to change the peril limits in response to potential risks.

Perils Covered by Hazard Insurance

It’s important to note that hazard insurance does not provide uniform coverage across all perils. Others may be excluded based on the risks of your specific region. Your policy typically offers some level of coverage for:

  • Fire and smoke damage
  • Lightning
  • Theft, if it involves your primary dwelling
  • Vandalism
  • A fallen tree that hits your home
  • Natural disasters
  • Damage to your home if struck by a motor vehicle
  • Hail
  • Windstorms
  • Damage from snow and ice
  • Explosions that affect your home’s structure
  • Select instances of water damage

In terms of coverage, consider the following:

  • Covered Perils: Never take out hazard insurance without first reviewing the perils it covers and how much. You may also be provided with a Natural Hazard Report, which lists the risks that make your region more vulnerable.
  • Excluded Perils: Across the country, hazard insurance excludes flood coverage. However, water damage from a malfunctioning appliance or burst pipe will be included. You’re advised – if not required – to purchase flood insurance separately. In some regions, earthquakes and wind may deliberately be excluded.
  • Negligence: Hazard insurance also excludes damage related to negligence. Instances include pest damage from rodents or termites, mold, and wear and tear.

How Much Coverage You’ll Need

Think about how much coverage you will need for certain perils. Ideally, your policy provides enough to rebuild your home in the event that a fire, natural disaster or another extreme event fully destroys your dwelling.

You’ll want to insure your property based on the replacement cost or the value of materials and labor required to rebuild to its pre-disaster condition. This will likely be more than your mortgage. Additionally, you will need to think about:

  • Extended Replacement Cost: This coverage anticipates instances in which construction and building materials see higher demand. Amounts can exceed up to 50 percent of your coverage limit.
  • Guaranteed Replacement Cost: This option extends coverage as far as you need to completely rebuild your home to pre-disaster quality.

Are you shopping around for homeowner’s insurance or looking to make adjustments to your current policy? To speak with a HUB International agent, contact us today.