Homeowners insurance and hazard insurance are two types of coverage offered by home insurance companies that are commonly required by mortgage lenders. Homeowners insurance provides financial protection against damages to a home or belongings, medical bills following an accident on the property, or additional living expenses if the home is completely destroyed. On the other hand, hazard insurance is included in homeowners insurance policies and is intended to cover the costs of damages caused by natural or man-made disasters, such as fires or hail storms.
Homeowners insurance aims to help homeowners pay for damages to their property or belongings that occur as a result of a covered peril. A peril is an event that caused damage, and a covered peril is a specific damage included in the policy’s coverage terms. Standard homeowners insurance policies typically include six types of coverage: dwelling protection, other structures protection, personal property protection, loss of use coverage, personal liability coverage, and medical payments coverage.
Hazard insurance, also known as dwelling coverage, focuses on the structure of a home, including the foundation, walls, ceilings, roofing, and siding, and covers damages caused by disasters such as fires or storms. Named peril policies include a set list of coverages, while open peril policies include additional perils beyond those listed, but certain natural disasters, such as earthquakes and floods, require additional coverage. Hazard insurance is included with the standard homeowners insurance policy, so most homeowners do not pay an additional cost for this coverage.
When deciding what coverage a homeowner needs, it is important to understand which types of damages are covered and what is not covered by the insurance policy. Homeowners must assess the value of their home and belongings and determine if they need additional coverage to fully protect their investment. If a lender specifies hazard or dwelling coverage, purchasing a standard homeowners insurance policy will meet their needs.