Difference Between Hazard Insurance And Homeowners Insurance

Hazard insurance is actually a part of Homeowners insurance. When a person takes a mortgage loan to buy a property, the lender bank will insist on a homeowners insurance policy that includes certain hazard insurance.

These hazards may typically be based on certain hazards that are more endemic to the location of the property.

Hazard insurance covers the structure of the house such as the walls, the roof and any other supporting and related structures. It covers the house against perils that may damage the house, such as fire, floods, winds, hailstorms, vandalism, arson and many other hazards which endanger the structure of the house.

Hazard insurance is limited to the physical structure of the house and does not cover any other liabilities such as theft or personal injury caused to anyone.

A homeowners policy includes hazard insurance, as well as other liabilities such as personal belongings coverage and claims caused by personal injury or loss to any neighbor, guests or visitors. Even damages caused by a household pet may be included in a homeowners insurance policy.

Some of the important points to note are the following:

  • A typical HO-3 homeowners policy is what is asked for by lenders, as it covers most of the hazards. These hazards are covered under ‘named’ perils.
  • A typical HO-1 homeowners policy is the minimum coverage that a mortgage will require. It is basically bare hazards insurance and covers the structure of home against 11 named perils.
  • An HO-2 homeowners policy includes hazards insurance, as it covers the structure against hazards; as well as includes personal property against 16 named perils.
  • HO-3 policies cover all three; the hazards, personal property, as well as liabilities that may arise; against 16 named perils.  
  • An HO-5 policy is the most comprehensive, as it covers everything as in HO-3 policy against open perils.
  • A mortgagee who takes a home loan to buy a house is generally asked by the lender to take HO-3 policy as besides other insurance coverage, it covers the house structure against 16 named perils which make for acceptable hazard insurance.
  • HO-5 policy is the most comprehensive hazards insurance that you can buy. It covers all open perils. This means that unless the damage caused by a peril is specifically excluded, it is covered by the insurance policy.
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