Difference between perils and hazards on a home policy
Simply put, a peril is the cause of the loss and a hazard increases the likelihood of a peril happening. Perils and hazards are mistakenly interchanged when discussing home insurance. They aren't synonyms. Lenders have popularized the term "hazard insurance," which creates confusion as to the definition of a hazard.
For example, a fire begins in a chimney and destroys a home: the peril is the fire and the hazard is the dirty chimney.
What is hazard insurance?
Also known as "dwelling coverage," hazard insurance describes the part of your homeowners insurance policy that protects your home's structure from various perils. Lenders use the term to underscore the minimum home insurance requirements before they'll approve your mortgage loan, as they have an interest in protecting your home's foundation and structure.
What does hazard insurance cover?
Hazard insurance protects you against damage to your home from covered perils and specifically covers your home's structure, including:
- Walls and flooring
- Built-in appliances, including water heaters
- Attached garage
Hazard insurance vs homeowners insurance
Hazard insurance, or dwelling coverage, is just one part of your overall home insurance policy. Keep in mind, hazard insurance only covers your home's structure and nothing more. It is not a substitute for homeowners insurance, which also provides coverage for liability, personal property, and additional living expenses.
What are examples of perils?
Perils encompass events that can damage your home and belongings. Here are the 16 covered perils (commonly referred to as "named perils") listed on basic homeowners insurance policies:
Fire or lightning
Windstorms and hail
Vandalism or malicious mischief
Weight of ice, snow, and sleet
Riots or civil commotion
Damage from aircraft
Damage from vehicles
Accidental water/steam overflow discharge
Sudden and accidental tearing apart, cracking, burning, or bulging of an appliance*
Sudden and accidental damage from artificially generated electrical current
*Includes hot water heating systems, air conditioning or fire sprinkler systems, and water heating appliances
Please note there are other perils that will generally NOT be covered by a home insurer, including: earthquakes, landslides and mudflows, floods, termites, mold, and acts of war.
To protect against perils like flooding and earthquakes, you may be able to purchase coverage as an endorsement on your policy or a specialized policy from the government or a private insurer.
Named perils vs open perils
Named perils and open perils refer to the different types of coverage provided in your home insurance policy. "Named perils coverage" means you are covered for specific perils listed in your policy. "Open perils coverage" means you are covered from all perils unless the peril is specifically excluded in your policy. Common examples of excluded perils are flooding and earthquakes. You'll typically pay more for a home insurance policy with open perils coverage, since your home insurance company will be assuming more risk. Keep in mind, you usually won't be able to purchase an open peril policy when it comes to renters insurance.