What Is Hazard Insurance and Do You Need It?

Wind, hail, freak turkey-frying accidents—hazard insurance protects your home financially from life’s emergencies. And while you’ll sometimes see the term hazard insurance used in place of homeowners insurance, they aren’t the exact same thing.

The technical definition of hazard insurance is that it’s part of a homeowners insurance policy that helps pay for damage to your home caused by hazards (aka bad stuff). Insurance companies sometimes refer to hazards as perils, and they include things like natural disasters, fire and theft.

Hazard Insurance vs. Homeowners Insurance

Hazard insurance specifically applies to damages to the physical structure of your home. The rest of your homeowner’s policy covers stuff like liability and personal property.

Hazard insurance and homeowners insurance go hand in hand. You can’t have one without the other because it’s a homeowners policy’s job to cover hazards.

What are some of those hazards? Let’s take a look.

What Does Hazard Insurance Cover?

Hazard insurance covers tons of things that can damage or destroy your home. These include: fire and smoke, wind, snow, hail, lightning, water (from a broken pipe), theft, vandalism, riots, fallen trees or other objects (watch out for Chinese spy balloons!), and explosions (usually caused by gas leaks).

If someone knocks back a big dose of grandpa's ol’ cough medicine and rams their Buick into your house, that’s covered too!

But a standard homeowners policy doesn’t cover every type of hazard. Earthquakes, hurricanes and floods (of the natural type, not the broken pipe type) usually aren’t covered. If you live in a place at risk for those types of natural disasters, you’ll have to buy separate flood insurance, earthquake insurance or hurricane insurance.

How Hazard Insurance Works

When you purchase a homeowners insurance policy, you can choose to have the insurance company base the amount of your home’s coverage either on the actual cash value or the replacement cost.

If a covered event occurs (say your roof is damaged by hail), you file a claim with your insurance company. If the claim is approved, the insurance company will pay for the costs to repair or replace your damaged property, up to the policy amount.

Before signing up for a homeowners policy, take some time to figure out exactly how much homeowners insurance you need. You don’t want the moment you find out you don’t have enough coverage to be the moment you actually need it to replace your hail-damaged roof, for example.

Do You Need Hazard Insurance?

Homeownership is a good financial move—but it comes with risks. And the point of hazard insurance is to transfer that risk from you to your insurance company.  So, you definitely need hazard insurance if you own a home. In fact, if you have a mortgage, your lender will require you to have hazard insurance for your home.

But what if your home is paid off—do you still need insurance? Yes, 100% yes! No one expects a gas leak to make their home go up in flames like the Hindenburg, but stuff happens. Your home is your biggest investment, and you need to make sure it’s protected.

Imagine this scenario: You come home from vacation, open the front door, and water gushes out, soaking your tanned feet. A water line busted while you were at the beach and flooded your house! Now imagine having to pony up thousands of dollars to repair your house. Yikes! (Say goodbye to your emergency fund.)

But that's where home hazard insurance comes in to save the day. It covers the cost of home repairs, minus your deductible, which is the amount of money you’re responsible to pay when you make a claim.

Protect your home and your budget with the right coverage!

Now, if you’re wondering about the couch or other things that got ruined by water inside your house, your homeowners insurance will cover those things as part of your personal property coverage.

Homeowners insurance usually includes three types of coverages: dwelling (the house itself), other structures (detached garages, sheds, fences), and personal property (all the junk inside your house). Hazard insurance refers specifically to your dwelling and other structures.

But just so you know, you can’t purchase hazard insurance without homeowners insurance or vice versa. It’s a package deal.

How Much Hazard Insurance Do You Need?

When you’re buying hazard insurance, it’s never good to skimp. Your dwelling coverage should equal the replacement cost of your house, which is how much money it would take to build a replica of your home (minus the coffee stains on your carpet, of course).

The rest of your homeowners policy will cover your stuff (personal property) and injuries that happen on your property (liability).

How Much Does Hazard Insurance Cost?

That brings us to the cost of hazard insurance. The average homeowners insurance premium (including hazard insurance) is $1,544 per year.¹

Depending on what state you live in and how much your house is worth, your policy could be higher or lower than the national average. Your cost also will depend on your deductible and how much insurance you choose to have. If you select a higher deductible, your premium will be lower.

So, how much is a homeowner’s insurance deductible? You can usually choose a percentage of your home’s value (typically 1% to 5%) or a set amount ($500 up to $2,500 are pretty common).

Say your home is worth $400,000. If you have a 1% deductible, that means you’ll have to pay the first $4,000 of a claim before the insurance company pays.

How Do You Pay for Hazard Insurance?

Hazard insurance is a pretty big expense and most people pay it annually. So how do you save all that money to pay for insurance? If you have a mortgage, your lender will usually collect money for your insurance bill each time you make a house payment in an escrow account. And they’ll pay the bill with your escrow money when it’s due.

If your home is paid off, you might have the option of paying your insurance monthly, quarterly or annually, depending on your insurance company.

How to Get Hazard Insurance

Hey, hazard insurance is a must for homeowners. When it comes to your biggest investment—your home—you can’t afford to be underinsured. That’s why choosing the right independent insurance agent is so important. Our network of RamseyTrusted pros will walk you through exactly how much home insurance you need and help you choose the right coverage—from dwelling to personal property all the way to liability and additional living expenses. They can even check if you can save any money by bundling home and auto insurance together.

And by the way, the value of your insurance policy will not automatically increase along with the value of your home, so it’s important to check up on your policy with your agent every year to make sure you have enough coverage.

If you want to be sure you have the right amount of homeowners insurance, talk with one of our RamseyTrusted pros. Each one is also an independent insurance agent—that means they work for you, not the insurance company. They’ll find coverage to meet your needs and budget, and you can feel confident you’re working with an agent who has your best interest at heart.

Find a RamseyTrusted agent today!