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Is hazard insurance the same as homeowners insurance?

home-insurance

 

The terms “hazard insurance” and “homeowners insurance” have confused many homeowners since the dawn of the housing market. However, these terms are not the same. There's no such thing as stand-alone hazard insurance; it's always part of the homeowners insurance policy. 

If you've ever wondered what each policy covers, the differences and benefits, this article answers these questions and more. 

 

What is hazard insurance?

Hazard insurance is a subcategory of a homeowners protection policy that safeguards the physical structure of your home. As part of your overall financial protection, your hazard insurance will cover numerous damages.

The widespread adoption of the term "hazard insurance" goes back to mortgage lenders. This raises another crucial question: Why was hazard insurance added to my mortgage?

Your mortgage lender may demand hazard insurance before issuing a loan because it's the only part of homeowners insurance directly tied to the property structure. This could lead to the misunderstanding that hazard insurance is a different policy from home insurance, which is incorrect. Your insurance agent at your insurance company can help you better understand how hazard insurance fits into your insurance cost, including if there is a separate policy you could take advantage of.

If your lender has indicated that you must get hazard or dwelling coverage, be aware that a standard homeowners policy will often satisfy their requirements.

It is not always the case that hazard insurance coverage protects against injuries you or your guests suffer due to an accident. These injuries could be covered under liability coverage.

Continue reading to learn the perils covered by hazard insurance. 

What’s covered by hazard insurance?

Hazard insurance typically safeguards your home against several different perils, including:

  • Fire 
  • Falling aircraft and objects
  • Explosions
  • Electrical current
  • Overflow of water or a steam 
  • Lightning
  • Hail
  • Freezing of A/C or heating systems
  • Vandalism
  • Theft
  • Smoke
  • Riots
  • Windstoms
  • Weight of ice or snow
  • Volcano eruptions
  • Vehicles

Any hazard not in the list above typically isn't part of hazard or peril policy coverage. Nevertheless, this list is quite comprehensive and sufficient for most homeowners.

On the other hand, there are several types of homeowners insurance coverage. Each type comes with an open or named hazard approach. 

The open hazard approach covers every peril imaginable, except for the following exclusions:

  • Nuclear meltdown
  • Power outage
  • Pollutant discharge
  • Neglect
  • Legal ruling
  • Mechanical collapse
  • Breakdown of internal structures
  • Government action or intervention
  • Pets
  • Earth movement
  • War
  • Vermin and wildlife
  • Destruction while vacant
  • Rust, corrosion or smog
  • Wear and tear
  • Fungus, wet rot or mold
  • Conscious damage by occupants or owner
  • Power failure
  • Theft while under construction
  • Specific instances of water damage
  • Emissions from nearby industries

Judging from this long list of exceptions, you might think the open perils policy has fewer inclusions. But it's the opposite — a home insurance policy with this hazard protection covers much more perils than the named policy. It is the primary reason it is the more expensive of the two. 

 

What is homeowners insurance?

A homeowners insurance policy is a type of financial protection policy that covers your personal responsibility if you are legally accountable for an accident and any damage or loss to your property. 

What is another name for homeowners insurance? 

Homeowners insurance is also known as a home insurance policy. But this insurance plan is also frequently referred to as a "package policy." This is because it typically includes multiple types of property and liability insurance.

The basic homeowners policy covers land, structures and personal properties against fire, storms, theft and other damage-causing factors. 

Homeowners insurance policies come in various packages, insurance quotes and premiums (HO-1 through HO-8), each with varying levels of protection and coverage options. 

Types of coverage are broken down below:

  • HO-1: The most fundamental and minimal type of coverage for single-family houses is almost obsolete now.
  • HO-2: A more widespread policy and a minor improvement from HO-1.
  • HO-3: A common policy among homeowners, providing more coverage from named perils and natural disasters than HO-2.
  • HO-4: A policy type designed exclusively for renters (typically known as renters insurance).
  • HO-5: The second-leading type of homeowners insurance for single-family homes but the most comprehensive of the eight. 
  • HO-6: Coverage tailored for condominium owners.
  • HO-7: The sort of policy a mobile or prepackaged homeowner purchases.
  • HO-8: Meant for a policyholder with older real estate properties that fall below the standards of most insurers.

Typically, renters receive an HO-4 policy, while those who own a single-family house will be advised to choose an HO-3 approach to preserve the value of their home. 

What is a standard homeowners insurance policy?

The HO-3 plan is the standard and most prevalent type of homeowners insurance in the United States, accounting for 80% of all home insurance. It includes coverage for your residence, medical bills, liability, personal property and additional living expenses.

What’s covered by homeowners insurance?

There are six main parts to a typical home insurance policy. The limit of liability is the maximum amount your insurer will pay out if there is a claim against them.

  • Personal liability coverage. Protects you from costly lawsuits if you are legally responsible for someone else's injuries or property damage.
  • Dwelling coverage. Pays the cost of repairing or replacing your home's structure and any related structures.
  • Personal property coverage. Encompasses the expense of damage to or loss of personal property, and it applies to losses occurring both on and off your property.
  • Loss of use coverage. Includes the cost of temporary accommodation, restaurant meals and moving fees during your home's restoration following a covered loss.
  • Medical payments coverage. Coverage for hospital costs, independent of responsibility.
  • Additional structures coverage. Covers the expense of damage to detached structures, such as a fence, separate garage, above-ground pool or shed.

Degrees of coverage

The level of protection your homeowners insurance covers determines how much money you'll get back if your house or personal property is damaged or destroyed. Two distinct levels of coverage are available in a typical homeowners insurance policy.

  • Actual Cash Value (ACV): If your home or personal items are stolen or damaged due to a covered risk, you'll receive the reduced value of what you've insured. Since depreciation is a major consideration, the actual cash value policy is the least expensive level of coverage but also delivers the lowest claim payouts. To be qualified for a claim under the ACV policy, your items would have been destroyed by a peril protected by your insurance coverage. 
  • Replacement Cost Value (RCV): Covers the worth of your home or personal items if they are stolen or damaged, without depreciation deducted from the claim settlement. The actual monetary value of an item is typically less than its replacement cost, although the latter allows for higher coverage limits. Under RCV policies, the amount you get in your claim depends on the replacement cost minus your policy’s deductible. 

 

Hazard insurance vs. homeowners insurance: key differences

"Is hazard insurance the same as homeowners insurance?" To finally put the question to rest, you'll have to focus on three aspects of your home insurance as outlined below:

   Hazard Insurance  Homeowners Insurance

 What it covers

 Damages to your home's structure  Every eligible damage to your home's systems, including costs related to liability and personal property loss.
 How to claim it  Paying for homeowners insurance  Signing up for a policy via an independent agent or insurance firm.
 When it comes into play  When a covered peril damages your home  Situations involving the theft and damage of structure or property and injury to occupants on your property.

 

Covering the cost of damage to your home with homeowners insurance is an excellent idea, but that’s just the beginning. Homebuyers in the United States spent more than $457 billion in 2020 on home improvements, like repairs and remodels.

This is where a home warranty comes in.

 

What is a home warranty?

A home warranty agreement between a home warranty provider and a homeowner guarantees subsidized repair and replacement services on a home's major systems, including the plumbing, furnace, electrical systems and HVAC. 

Home warranties can also include coverage for the repair of large equipment, like refrigerators, heaters, swimming pools, washers and dryers.

Typically, homeowners insurance does not cover these items that fall under a home warranty. The cost of repairing them would not reach the policy's deductible — the total amount at which insurance coverage begins. In other words, a home warranty is different from homeowners insurance and can play a vital role in saving on repair costs.

Usually, all homeowners who acquire insurance are covered by the same basic coverages. Homeowners can also buy one or more extra components of the home warranty that give them more protection for an increased cost.

 

Discover how Cinch home warranties protect you from costly repairs

Repair costs of personal belongings can escalate out of control and be a financial nightmare for any homeowner. However, there is an affordable solution for those looking to cover the high cost of repairs to their home’s built-in systems, appliances and more. 

The answer is Cinch Home Services. 

Cinch home warranty plans are designed to protect you from costly repairs of personal property and more. You can choose from three flexible plans to meet your needs:

  • Appliances Plan
  • Built-in Systems Plan
  • Complete Home Plan

To compare these three warranty plans, get a quote for your home today. 

 

Is hazard insurance the same as homeowners insurance? No! Hazard insurance is typically part of a homeowners insurance policy. Learn the full details here.