Many homeowners think only about their homeowners coverage when they purchase a home or after experiencing a loss. It isn’t always easy to understand your policy, especially when you’re under stress or under pressure. The most common question is: Is hazard coverage the exact same as homeowners’ insurance? This distinction is easy, if you’ve ever thought about it.
Is homeowners insurance the exact same thing as hazard coverage?
Yes, but it is a part your homeowners insurance policy. The two terms can’t be interchangeable because they are one part of your policy. It is not an independent policy that you must purchase.
You already have homeowners insurance if you have hazard insurance. It is because of the way lenders communicated during the homebuying process that homeowners insurance and hazards insurance became synonymous.
Homeowners insurance’s purpose is to cover the cost of repairs or replacement of your home in case it is damaged by a covered risk. As homeowners insurance policies protect against hazards, “hazard insurance” is what it is often called. These usually include:
- Fallen trees
- Fire damage
You may be able to file a claim if your home is damaged by an item on your policy.
Insurance for homeowners
If you decide to file a claim for compensation, the type and amount of your policy will affect how much you get in a payout. There are two options available to you at the beginning of your policy. They will both impact payout outcomes: actual cash value or replacement cash value.
A policy with an actual cash value (or ACV) means that your insurance provider considers the item’s depreciation in calculating a payout. If your roof is damaged by windstorms, for example, its age and remaining life will be combined with replacement costs to determine the amount of money you will get. This policy is cheaper than a replacement cash-value policy because depreciation is included. An ACV policy will only allow you to file a claim if the item has been damaged by a peril that is covered under your policy. If the peril is included, you will need to pay the difference between the amount your provider pays and the cost to repair or replace the item.
A replacement cash value policy, also known as RCV policy, is when the actual cost of replacing an item is calculated in order to determine a payout. RCV policies are more expensive than ACV policies because they do not take into account depreciation. RCV policies will pay you the replacement cost less your deductible. This is assuming that the loss was due to a peril not listed in your hazard policy (or not excluded in the case open peril).
The following are common coverages included in standard homeowners’ insurance policies:
- Dwelling Coverage: This covers your actual house, which includes its foundation, roof, walls and windows. If your house is upside-down, will not be affected.
- Loss or use of coverage: In the event that you are forced to move to another area due to an insured peril, your loss of coverage will pay for additional living expenses up until a limit.
- Additional structures coverage: Do you have detached structures? Your policy covers unattached items like a shed or greenhouse.
- Insurance coverage: This coverage will cover the medical costs of guests who are injured at your house up to a predetermined limit.
- Personal Liability Coverage: In the event that someone is hurt at your house, personal liability covers you for your court costs up to a maximum.
- Personal Property Coverage: If the loss is due to a covered peril, it covers any personal property that has been damaged or lost.
Your homeowners insurance does not include hazard insurance. It covers the perils that homeowners insurance protects against. There are two types of perils you can choose from when it comes to this part of your policy: open perils and named perils.
Named perils policies protect your home from 16 perils. These perils include:
- Electric current
- Falling objects/aeroplanes
- Freezing A/C and heating systems
- Overflow of steam or water
- Volcano eruptions
- Weight of snow or ice
A standard named peril policy does not cover any peril that is not mentioned above. This is an extensive list that works for many homeowners.
A policy that covers open peril protects you against all perils, with the exception of these common exclusions.
- Internal structures collapse
- Pollutants to be released
- Earth movement
- Intervention/action by the government
- Intentional damage caused by the owner or residents
- Mechanical breakdown
- Wet rot, mold, and fungus are all possible.
- Normal wear and tear
- Nuclear fallout
- Ordinance of law
- Power failure
- Water damage can take many forms
- Smog, corrosion or rust
- You can smoke from nearby industries
- Construction theft
- Vandalism when vacant
- Vermin/ wildlife
Although it might seem that an open perils policy covers more than a named policy, it actually covers far more items. An open perils policy is more expensive.
Most providers offer homeowners insurance policies in eight different categories. Each has either a named perils or open perils approach.
Although HO-1 protects against 10 perils, HO-2 and HO-4 and HO-6 and HO-7 and HO-8 use the same named perils approach to their hazard insurance. HO-3, HO-5 and HO-5 only use open perils.
An HO-3 policy is the most popular type of homeowners insurance in America. It covers your home, personal property, medical payments, liability, and additional living expenses.
There is a difference between homeowners and hazard insurance
- Homeowners insurance does not include hazard insurance.
- Insurance for homeowners protects against common perils (aka dangers).
- Your policy can be either an open perils or a named perils.
- Your policy can be either an RCV (replacement cash) or an ACV (actual cash) policy.
- Most homeowners have an Open Perils Policy (HO-3)