• Hazard insurance protects homeowners against damage caused by hazards such as wind, lightning, and ice.   
  • Mortgage lenders may require borrowers to maintain hazard coverage through a homeowners insurance policy.
  • Standard hazard insurance policies may not cover all hazards. Homeowners in disaster-prone areas may need separate coverage for certain risks, such as floods, earthquakes, or landslides.

Your home may be your most valuable asset. As such, you naturally want to protect this investment against damage from hazards such as lightning, fire, wind, snow, smoke, and theft. 

Hazard insurance, also known as disaster insurance, can provide financial protection against these perils. For simplicity, homeowners insurance policies typically contain a basic hazard insurance policy.[1]

There are, however, several misconceptions about hazard insurance. So, it’s important to understand how hazard insurance works, what it covers, and how to make sure your home is properly insured. 

What Is Hazard Insurance?

Hazard insurance is a policy that offers financial protection against certain risks that could damage a home. This type of insurance helps cover the cost of repairing or rebuilding a structure damaged by many natural disasters, including fire, hail, or windstorms. It can also protect against threats such as vandalism, theft, and explosions.[2]

This crucial coverage can prevent homeowners from shouldering the full financial burden of damage from unforeseen events. 

How Hazard Insurance Works

If a property is damaged by hazards covered under an insurance policy, the homeowner can file a claim for financial assistance to repair or rebuild the damaged structure. In addition to the primary structure, hazard insurance typically covers outbuildings such as garages and sheds. When a claim is filed, the insurer sends a professional to assess the damage and determine the cost of repairs or replacement based on the terms of the policy. 

So long as the specific event that caused the damage is covered by the hazard insurance policy, the homeowner receives compensation to help cover the cost of repairs or replacement.[3] There may, however, be a pre-determined deductible the homeowner would have to pay before the insurance coverage kicks in to cover the rest. There may also be policy limits that cap the amount the insurance provider can pay out. 

Coverage only applies to perils explicitly listed in the policy. Some events, such as floods, earthquakes, or landslides, may require separate insurance policies. 

What Is Covered by Hazard Insurance?

Coverage can vary from one policy to another. Some policies cover damages on an "open perils" or "all risks" basis, meaning that the policy covers any cause of damage that isn't specifically excluded. Other policies limit coverage to a “named peril” basis, meaning that the specific event must be named to be covered.[2]

Homeowners should review their policies carefully to understand what is and is not covered in that specific policy.

The following perils are commonly covered by hazard insurance:[2],[4]

  • Fires
  • Hail
  • Lightning
  • Wind
  • Smoke
  • Sudden damage from a power surge
  • Weight of ice, snow, or sleet
  • Falling objects
  • Explosions
  • Theft
  • Vandalism
  • Riots
  • Volcanic eruptions
  • Sinkholes
  • Water damage from malfunctions in household systems, such as plumbing or air conditioning
  • Freezing of those same household systems
  • Damage caused by vehicles or aircraft

What Is Not Covered by Hazard Insurance?

The following perils are often not covered by hazard insurance and may require a separate policy:[2],[4]

  • Flooding from heavy rain
  • Earthquakes
  • Landslides
  • Sewer backup
  • War

Hazard Insurance vs. Homeowners Insurance

Hazard insurance and homeowners insurance are closely related, but they are not the same. Hazard insurance is a component of a broader homeowners insurance policy, focusing specifically on protecting the value of structures from the perils discussed in this article. 

Homeowners insurance, on the other hand, is a more comprehensive policy that includes not only hazard insurance but also liability coverage, which protects against lawsuits for injuries that occur on your property, and personal belonging coverage, which offers protection for items inside the home such as furniture and appliances. 

Hazard Insurance and Mortgages

Hazard insurance is connected to home mortgage loans through homeowners insurance. To understand the relationship between hazard insurance and mortgages, consider the following frequently asked questions on the topic.

Do Mortgage Lenders Require Hazard Insurance?

Lenders typically require homeowners insurance. Because hazard insurance is part of homeowners insurance, one could say that lenders do require hazard insurance.[1]

The reason for this requirement is that lenders need to protect their investment in the property. If, for example, a home were to incur substantial damage from a storm, homeowners without hazard insurance might not have the means to rebuild the home. If that were to happen, the homeowner would be less likely to continue paying the mortgage for the property. This puts the lender in the unfortunate position of having to foreclose on the mortgage and repossess the property. 

How Are Hazard Insurance Premiums Paid?

Hazard insurance premiums are included in the homeowner's insurance premium. In many cases, these premiums are rolled into the mortgage payment. Homeowners make monthly mortgage payments to the lender, and the lender holds the part of the payment that is for insurance in an escrow account. Then, when the insurance premiums are due, the lender (or loan servicer) pays the bill from the escrow account.[1] Property taxes are often handled the same way, which is why mortgage payments are said to comprise PITI (principal, interest, taxes, and insurance). 

If you are concerned about the cost of homeowners insurance, please know that there are several ways to save on homeowners insurance, including bundling insurance products, seeking out discounts, and increasing the deductible.

Can a Homeowner Remove Hazard Insurance from Their Mortgage?

Because mortgage lenders rely on the financial protection homeowners receive from homeowners insurance with adequate hazard insurance, they typically do not allow homeowners to remove the hazard insurance from their mortgage.[4] If a homeowner fails to maintain coverage, the lender may purchase insurance on the owner’s behalf, typically at a higher cost. This is called "force-placed insurance."[5]

How To Choose the Right Coverage

As with all insurance policies, choosing the right coverage depends on your unique needs. 

Here are some common considerations when selecting insurance plans:

  • Confirm lender requirements. In addition to basic hazard insurance, lenders may require additional policies, such as flood insurance, for those in disaster-prone areas. 
  • Balance the premiums with the deductible. Lower premiums typically mean a higher deductible and vice versa. The higher the monthly premiums, the less you will likely pay as the deductible when a claim is filed.[6] 
  • Shop around to compare rates. Get quotes from multiple providers and compare coverages against costs.
  • Purchase additional coverage as needed. If you have concerns about perils that are not covered, such as earthquakes or landslides, look into specialty insurance policies. Weigh the cost of the policy against the likelihood of an event and the potential damage. 

If you have questions about hazard insurance or mortgage loan requirements, consult a local mortgage loan officer for personalized assistance.