What are you going to do? You knew you'd need homeowners insurance as part of the mortgage closing process, but what about hazard insurance?

Don’t worry. Chances are, you’re already covered.

What is hazard insurance?

Hazard insurance is a component of a homeowners insurance policy that covers physical damage to your home caused by fire, hail, and other disasters. This type of insurance is typically not available on its own.

Lenders typically use the term "hazard insurance" to refer to coverage for your home's structure. Before approving your mortgage, they will often require you to have a certain amount of coverage to protect their investment.

Is hazard insurance the same as homeowners insurance?

Not quite. Dwelling coverage, which is part of a homeowners policy, is another name for hazard insurance. Other benefits of standard home insurance include coverage for your personal belongings. In addition, if you have to relocate during covered repairs, your homeowners insurance will cover additional living expenses.

Though the two types of coverage aren't interchangeable, purchasing a homeowners policy will usually satisfy your lender's hazard insurance requirement.

What does hazard insurance cover?

Hazard insurance covers damage to your home caused by events such as fire, burst pipes, and heavy snow. Most homeowner policies insure the structure of your home against "open perils" or "all risks." That is, your policy will cover any cause of damage that isn't expressly excluded.

A standard homeowners policy, for example, will not usually cover:

• Flooding caused by external factors such as heavy rain.
• Earthquakes.
• Normal wear and tear.
• Sewer backup.
• War or nuclear action.
• Intentional damage by the homeowner.

Some of these perils may be covered by additional insurance. Flood insurance, for example, is available from the federal government or other private providers. (Depending on your location, your lender may require it.) In addition, many companies allow you to add coverage for sewer and drain backup at an additional cost.

Some homeowners have hazard insurance that covers their home only against "named perils." These policies only cover the structure of your home for specific listed events such as:

• Fire or lightning.
• Windstorm or hail.
• Theft.
• Smoke.
• Vandalism.
• Sudden damage from a power surge.
• Ice, snow, or sleet weight
• Falling objects.
• Explosions.
• Riots.
• Volcanic eruptions.
• Overflow or discharge of water from household systems such as plumbing, air conditioning, and appliances
• Freezing of those same household systems.
• Sudden tearing, cracking or bulging of a hot water system, steam system, air conditioning or fire-protective system.
• Damage from aircraft.
• Damage caused by vehicles.

How hazard insurance works

If your home sustains damage that you believe should be covered by hazard insurance, the first step is to file a claim with your insurance company. Include photos or video of the damage, as well as as much information as possible about what you lost.

Once your claim is approved by the insurer, your payout is determined by how much the damage will cost to repair, the amount of your dwelling coverage limit, and the amount of your deductible.

A deductible is the portion of a claim for which you are responsible. Assume you've chosen a $1,000 deductible and a thunderstorm causes $5,000 in roof damage. Your insurance company will pay $4,000, and you will cover the rest.

Your homeowners policy may have two deductibles: one for most claims and one for specific perils like windstorms or named hurricanes. Details can be found on the declarations page of your policy.

How much hazard insurance do you need?

In general, you should purchase enough hazard insurance to cover the full cost of rebuilding your home if it is destroyed.

Keep in mind that this figure, known as your home's "replacement cost," isn't always the same as the purchase price. It is instead based on the estimated cost of materials and labor required to rebuild the house to pre-disaster condition. Your insurer can assist you in determining the appropriate amount.

Consider one of the following optional types of coverage for added peace of mind:

• Extended replacement cost. When a hurricane or wildfire causes widespread damage in a particular region, local construction costs often rise as a result of increased demand. If this occurs, your replacement cost coverage may be insufficient. Extended replacement cost coverage protects against such gaps. In the event that costs exceed expectations, you may be able to choose an amount ranging from 10% to 50% above your coverage limit.
• Guaranteed replacement cost. Going a step further, guaranteed replacement cost coverage pays the difference between the dwelling coverage limit and the cost of rebuilding your home.

How much does hazard insurance cost?

Hazard insurance does not cost extra if you already have a standard policy because it is included in your homeowners insurance coverage. According to InsuredCircle rate analysis, the average cost of homeowners insurance is $1,784 per year. Your personal cost will vary depending on where you live, the size of your home, and the amount of coverage you require.

Adding coverage for perils not typically covered by a homeowners policy, such as flooding or earthquakes, will incur additional costs.

How to get a hazard insurance policy

The majority of major insurers offer homeowners policies that include hazard insurance. You can look for home insurance quotes online or hire an independent insurance agent to do the legwork for you. To get the best deal, compare quotes from at least three insurers.