Hazard insurance is the part of a home insurance policy that covers the physical structure of your home. If you have a mortgage for a home or a condo, the lender will make you carry hazard coverage to cover its end of the investment.
In this article
What is hazard insurance?
Often called dwelling coverage, hazard insurance protects your house's structure from damage or destruction due to covered perils. The parts of your home that it covers include:
- Built-in appliances
You are not required by law to carry hazard insurance, but mortgage lenders often do require it. Most lenders require you to carry HO-1 coverage, which protects against perils that include:
- Fire and lightning
- Hail and windstorm
- Damage from aircraft
- Vehicular damage (unless caused by policyholder)
- Vandalism and theft
- Riot and civil disturbance
- Volcanic eruption
HO-1 coverage is usually not sold as an individual policy. You are more likely to find it as part of another policy, such as an HO-3 policy, which is the most common type of homeowners insurance, or an HO-6 policy, which covers condos.
How are hazard insurance and home insurance different?
Hazard insurance is part of a homeowners insurance policy, not a policy itself. The following table shows what is included in an HO-3 policy along with hazard insurance.
|Coverage||Required by lenders?||What it covers|
|Hazard insurance||Yes||The structure of the home|
|Personal property||No||Your belongings|
|Personal liability||No||Legal and medical costs due to damage or injuries you cause|
|Loss of use||No||Extra living expenses that arise due to relocation while your home is repaired|
How much does hazard insurance cost?
Hazard insurance cannot be purchased separately from a homeowners policy. The table below shows the average cost of an HO-3 policy based on the dwelling coverage amount.
|Dwelling coverage||Average annual premium|
|Average rates are based on non-binding estimates provided by Quadrant Information Services. Your rates may vary.|
The cost of hazard insurance depends on many additional factors, including:
- Your ZIP code
- Construction materials used
- Your deductible
- Your claim history
Some providers also use your credit score when calculating your hazard insurance. But a few states prohibit the practice, including California, Hawaii, Massachusetts, Michigan and Washington.
How hazard insurance works with your mortgage
Mortgage companies require you to have hazard insurance to protect their investment. This is why they only require coverage for the structure of your home, not your personal property or liability.
If you have a mortgage, the house itself is collateral for your loan. If the house is damaged, its collateral value is reduced. Mortgage lenders make you carry hazard insurance to protect their own investment.
Even if a peril is excluded by your home insurance policy, your lender may still make you carry coverage for the peril. For example, flood damage isn't covered by a standard home insurance policy. If you live in a high-risk flood zone, though, your mortgage lender might require you to carry flood insurance anyway.
Hazard insurance and escrow
Mortgage lenders often set up escrow accounts for homeowners. Escrow can be considered a form of savings account that holds funds that are then used for your mortgage payment, home insurance premium and property taxes. Escrow is set up to simplify the home loan payment process.
Hazard insurance for condos
Some condo homeowners associations or master insurance policies do not cover the interior structure of your unit. In such cases, your lender may require you to carry hazard insurance to make sure it's covered.
A condo HOA will have a master insurance policy that covers the condo building and its shared spaces. What that master policy covers depends on the type of policy in place. The three main types of condo master policies are:
- Bare walls: This master policy type covers nothing inside the bare walls of your unit. If your lender requests it, you will need to provide coverage for it.
- Single entity: This type of condo master policy extends to the unit's original features, You have to cover everything else, including any improvements you make.
- All-inclusive: This master policy type covers most permanently attached fixtures and appliances, including any improvements you or previous owners make. This master policy takes care of the dwelling coverage portion of a condo insurance policy, but you will probably want to get personal property, liability and loss of use coverage, too.
Frequently asked questions
What is hazard insurance?
Hazard insurance is part of homeowners insurance. It is the policy section that provides coverage for your home's physical structure.
Is hazard insurance different from homeowners insurance?
Yes. Hazard insurance is included in homeowners insurance. Home insurance consists of hazard insurance as well as several other coverages like personal property and liability protection.
Am I required to have hazard insurance?
Hazard insurance is not required by state or federal law, but mortgage lenders usually require it as a condition of your loan. Even if you don't have a mortgage or hazard insurance isn't required, we recommend it as a great way to protect your home and give you peace of mind.
How much does hazard insurance cost?
Hazard insurance cannot be purchased on its own — it is part of homeowners insurance. The average cost of homeowners insurance is $1,903 a year, according to our study, but your rates may vary based on many factors.
We collected quotes from every ZIP code in all 50 states. The following HO-3 coverages were used:
- Dwelling coverage limits: $200,00, $275,000, $350,000, $425,000 and $500,000
- $27,500 other structures
- $137,500 personal property
- $55,000 loss of use
- $100,000 liability
- $1,000 deductible
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