Most homeowners expect that with the purchase of a house comes the additional expense of insurance. And while homeowner’s insurance is expected, few new homeowners are aware of hazard insurance. If you’re currently preparing to purchase insurance to protect your home and you’re still researching your options, here’s what you should know about the two types of insurance and what they can do for you.
What is Homeowner’s Insurance?
Homeowner’s insurance is a type of insurance policy that protects your home in the case of damage. What constitutes “damage” does have its limits, but it generally has multiple areas of causes and a wider range of coverage. To avoid the catastrophe of having to front costs for significant damage in the case of an accident, you can choose to pay a premium each month so that your homeowner’s insurance will cover those costs.
Homeowner’s insurance usually includes six areas of coverage:
Dwelling Coverage (also called “Coverage A” on some homeowner’s insurance policies) is essentially what it sounds like—it covers any damage to your physical house. This includes an attached garage, flooring, countertops, cabinetry, and any built-in appliances.
This type of coverage covers any outbuildings on your property, such as a detached garage or shed, as well as other physical structures on the property, like fencing. Generally speaking, Other Structures Coverage costs about 10% of the Dwelling Coverage.
Personal Property Coverage insures any personal belongings in your home in the case of damage or theft. This includes everything from your TV to your clothes and office supplies. But here’s the catch: most insurance policies have a standard Actual Cash Value (ACV) clause. This means that you only receive the amount equal to the depreciated value of your personal belongings. For example, let’s say you have a 5-year-old television that suffers damage during a fire. An ACV policy will only reimburse you the equivalent of a used television of the same age.
To avoid this, you can typically speak with your insurance provider about opting for a Replacement Cost Value (RCV) instead. This ensures that your reimbursement will be enough to replace it with a new item.
Loss of Use/Additional Living Expenses
If the damage done to your home leaves it in an unlivable state, this type of insurance will reimburse you for any additional living expenses you have due to living outside of your home. This may include eating out, staying at a hotel, or doing laundry at a laundromat.
Liability coverage insures you in the case that you are held liable for causing injury to another
person or property. If you’re sued, the prosecutor can use your property as collateral, so it’s recommended to add enough to your policy so that all of your assets are protected if something like this happens.
Medical Payment to Others
This is exactly what it sounds like; in the case that someone is injured on your property, your insurance will pay for their medical bills up to a certain amount.
What is Hazard Insurance?
Hazard insurance isn’t exactly a separate type of insurance. It’s a portion of your homeowner’s insurance policy. Specifically, it’s the Dwelling and Other Structures sections. Generally speaking, hazard insurance covers natural disasters such as storms, fire, hail, and sleet. But it’s important to check with your individual insurance provider to confirm what your policy covers.
It’s important to note that earthquakes, although they are a natural disaster, are not typically covered by hazard insurance. However, many providers give homeowners the option to add this on. If you live in an area where earthquakes are common, it’s a good idea to add it.
There are two types of hazard insurance. Be sure to check with your provider to determine which type yours is.
Named-Peril Hazard Insurance
Named-peril policies name specific events that are covered by your insurance. If it’s not listed, it’s not covered. Each policy has a different list, however, here are some of the most common events included on a named-peril policy.
Example of Events Included in a Named-Peril Hazard Insurance Policy:
- Accidental overflow of water or steam
- Accidental damage from an artificially generated electrical current
- Accidental tearing apart, cracking, burning, bulging
- Falling objects
- Fire or lightning
- Frozen plumbing
- Riot or civil commotion
- Volcanic eruption
- Weight of snow, sleet, or ice
- Windstorm or hail
Open-Peril Hazard Insurance
If you have an open-peril policy, it means that everything except for the events listed in the policy are covered. Again—it’s best to confirm with your own insurance provider what your policy covers. However, here are some of the most common events excluded from coverage by insurance companies.
Example of Events Excluded in an Open-Peril Hazard Insurance Policy:
- Birds, vermin, rodents, or insects
- Earth movements (including earthquakes, landslides, mudslides, sinkholes, and subsidence)
- Governmental action
- Intentional loss
- Mischievous acts
- Mold, fungus, or wet rot (unless it’s hidden and is a result of a plumbing failure)
- Nuclear hazard
- Ordinance or law
- Power failure
- Water damage from flooding
Hazard Insurance vs. Homeowner’s Insurance
Hazard insurance and homeowner’s insurance aren’t exactly an either/or situation. Generally, hazard insurance is included within your homeowner’s insurance policy, and if you have a mortgage, your mortgage lender almost always requires hazard insurance as a part of the contract.
With that being said, you could technically opt out of the other areas of coverage if you wanted to. But it’s a good idea to keep the more comprehensive coverage in case of emergencies (especially since, for most homeowners, their home is the most valuable asset they have!).
Is Hazard Insurance Required?
Hazard insurance is not legally required. However, as mentioned above, most mortgage lenders require it in order to receive a loan. And when it comes down to it, having hazard insurance (and homeowner’s insurance overall) is just good sense.
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