What is hazard insurance?

Hazard insurance coverage is one subsection of your homeowners policy, which protects you against loss or damage to your home from a covered peril. People often think hazard insurance and homeowners insurance are the exact same. However, homeowners policies combine hazard coverage and other policy components in different ways, depending on your needs.

Is hazard insurance the same as homeowners insurance?

Hazard insurance is part of a homeowners insurance policy, but they are not one and the same.

Hazard insurance, also known as dwelling coverage, guards you against loss if your house is damaged or destroyed by a covered peril. Where homeowners insurance insures multiple risks, hazard insurance specifically covers the structure of your home, such as its walls, flooring and roof. It also covers the plumbing and built-in appliances, such as the water heater. Finally, it covers additional structures that are part of the home, such as a garage.

Broadly speaking, typical homeowners insurance policies include the following areas of coverage:

Types of hazard insurance policies

The categories of insurance you have — and the perils covered by them — depend on the type of policy you carry.

Despite only being one part of most homeowners insurance policies, hazard coverage is the most important component. Most home insurance claims fall under the hazard section of the policy. Because of this, your homeowners insurance premiums and limits will be driven largely by the amount of hazard coverage your home requires.

Your hazard insurance policy will be subject to one of three limits, which provide varying amounts of coverage if your home is damaged by a covered peril. These include:

How much does hazard insurance cost?

You don't pay for your hazard insurance as a separate policy. Instead, it is incorporated into the premium for your broader homeowners insurance policy. How much the hazard coverage increases the premiums for that policy depends on several factors, including:

The average cost of homeowners insurance is $1,516. However, the area where you live and details about your home will determine your costs. Owners of older homes are likely to pay higher rates, in part because these homes may be more heavily damaged by many hazards and cost more to repair.

However, a house made of brick or stone may get you an insurance discount compared with one built out of wood, especially if the wooden house is located in a dry area that's prone to wildfires. Also, you may receive a discount on your premium by installing certain security features, such as an alarm system.

Types of homeowners insurance

There are eight types of homeowners insurance policies, each offering a range of coverage. All of the policy types include hazard insurance in their base coverage. Which type you should carry will depend on the type of home you own, the hazards associated with your area and the type of coverage your mortgage lender requires.

Which home insurance policy is right for me?

While hazard insurance is arguably the most essential type of coverage within your homeowners insurance policy, other forms of coverage, such as liability insurance, are also important. Because of this, HO-1 policies, the most basic type, are no longer offered in a number of states. They don't provide any coverage but hazard insurance, and even then the perils they cover are limited. Some HO-2 policies offer liability protection, but not all. Because of this, HO-2 policies are far less common than HO-3s. HO-3s are by far the most common form of homeowners insurance.

When shopping for homeowners insurance, you may or may not have a choice of the type of policy. For example, if you're borrowing money from a mortgage lender, they may dictate which policy you must purchase — usually an HO-3. In these situations, the policy your lender requires is likely fairly extensive in terms of hazard coverage.

What hazards are covered by my homeowners insurance?

Homeowners insurance policies cover a broad range of common perils. Most insurance companies exclude damage that results from a lack of maintenance or normal wear and tear. However, sudden and unexpected damage is usually covered, unless it's a specifically excluded hazard, such as earthquakes. To obtain coverage for excluded perils, you'll need to add an optional endorsement to your homeowners insurance policy.

Which perils are covered depends on the type of policy you have. Some policies, such as an HO-2, only cover "named perils" — those that are specifically stated in the policy. Other policy types, such as an HO-3, cover "open perils." This means that the policy provides coverage for all perils, except those specifically excluded on the declaration page.

Named perils vs. open perils

Named perils are specific hazards listed on the declaration page of your homeowners insurance policy. If your policy only covers named perils, you won't receive any reimbursement for damage from any hazard that isn't named. Here are the named perils included in an HO-1 policy:

In addition to these 10 perils, HO-2 policies cover the following six perils:

Open perils include any hazard not specifically excluded in your policy. Both HO-3 and HO-5 policies cover open perils. However, HO-5s tend to offer broader coverage — at an additional cost. The hazards excluded from your policy will vary based on the risks of your region. It's important to note that while some broad and common categories of damage, such as water damage, are excluded from your policy, you might still be covered if the damage was sudden and accidental.

Exclusions are meant to protect insurance companies from damage that results from a lack of maintenance on the part of the homeowner. If you've suffered damage due to an excluded hazard, you should still contact your insurance agent to see if you're covered. Here are some common perils that policies exclude: