The Cost of Home Insurance Is Determined by These 10 Factors

The price of homeowner’s insurance is determined by a number of factors, the most important of which are the location of your property and the amount of money it would take to replace it.

What is the Average Cost of Homeowners Insurance?

At-A-Glance

In 2017, homeowners insurance cost an average of $1,211 per year in the United States, however prices can range substantially.

Your home’s location and the amount it would take to reconstruct it are two of the most important aspects that determine the cost of your homeowner’s insurance policy.

Your credit history, the insurance company you go with, and whether or not you bundle several forms of insurance, such as vehicle and homeowner’s, are some of the many other factors that might affect your premium.

The majority of industry professionals are in agreement that every homeowner should have home insurance. Not only does it safeguard your property and belongings, but it also shields you from legal responsibility in certain circumstances. Your mortgage lender will almost always mandate that you purchase homeowner’s insurance, regardless of whether or not you are willing to accept the associated risks.

But how much should you budget to spend on the essential protection that comes with homeowner’s insurance? There is no straightforward response given that the price of homeowner’s insurance is highly variable and is dependent on a large range of different criteria. According to the National Association of Insurance Commissioners, the most prevalent type of homeowner’s insurance policy had an annual premium that averaged $1,211 across the country in 2017, the most recent year for which data was available. This was the most recent year for which data was available (NAIC). 1 But you might pay much less or much more. The cost of homeowner’s insurance can be affected by ten different factors, which are as follows:

The place that you call home.
The value of your home as comparison to the amount it would cost to rebuild it.
The amount of coverage that is provided.
The age of your home and its current condition.
Components of home protection and safety systems.
Your past experience with credit.
Other forms of coverage available.
Your deductible.
Purchasing additional insurance policies from the same provider in a bundle.
Your preferred option for an insurance company.

1. The Region in Which You Reside Will Have a Significant Influence on the Price of Your Homeowner’s Insurance

One of the most important aspects that determines the cost of your homeowner’s insurance premium is the neighborhood in which your home is located. According to the NAIC, homeowners in Louisiana paid an average of $1,967 for their premiums in 2017, which was almost three times as much as the average premium paid by homeowners in Oregon ($659). When hurricanes strike coastal states like Louisiana and Florida, insurers are occasionally forced to pay for billions of dollars in damages; as a result, they hike the premiums that homeowners pay for their insurance policies. This astonishing discrepancy is primarily the result of natural catastrophes.

The cost of homeowner’s insurance is also influenced by local characteristics that are specific to each state. These considerations include your city and your zip code. Because the prices of homes are often higher in cities than they are in rural areas, the costs of homeowner’s insurance also tend to be higher in cities. Your premiums might be lower if there is a fire station in close proximity to your home that is always staffed, but they might be higher if you live in a high-crime zone where insurance claims are more frequent. 2

2. The Value of Your Home and the Expense of Rebuilding It Are Important Considerations

Higher-priced homes typically have increased insurance premiums, and this is primarily due to the higher expenses associated with repairing or rebuilding them in the event of a loss. The portion of the cost of your homeowner’s insurance policy that goes toward coverage for rebuilding and repairing your house is a significant portion. The NAIC survey found that the average rate for home insurance varied by coverage level for the following types of policies, which are the most common: 3

$870 for coverage between $100,000 and $125,000.
$1,467 for $400,000–$499,000.
$2,149 for any amount over $500,000 in revenue.

Both the local construction expenses and the size of the home are factors that influence how much it will cost to rebuild and restore. It also relies on additional criteria, such as the type of construction, the design of the house, whether or not it was constructed to the customer’s specifications, and whether or not it has unique features like fireplaces. 4

3. A Higher Level of Coverage Will Cost You More

As was said in point No. 2, the premiums will go up proportionately to the degree of coverage you have. However, the quantity of coverage that you have doesn’t just take into account the cost of repairing or rebuilding your property. The following are the three main primary types of coverage that are often included in a conventional homes insurance policy:

Personal effects, including but not limited to furniture, clothing, and other equipment.

Liability protection against litigation and other expenditures, such as the cost of medical treatment for someone who is hurt in your house.

Additional living costs to cover the cost of living someplace else during the time that your home is being repaired, in the event that your home sustains such severe damage that it is uninhabitable.

In most cases, policies cover each type up to a predetermined maximum amount. If you choose to increase any of these sums, it is possible that your premium will go up. Examine the constraints very carefully, and ask yourself if you can actually adhere to them. For instance, some policies have a liability limit of $100,000, but according to an organisation representing the insurance industry, it is increasingly suggested that higher liability limits be used. 5

4. The Age of Your Home and Its Condition Are Important

If you own an older house, there’s a good chance your homeowner’s insurance rate will be higher. One of the reasons for this is because older homes frequently have components or building materials that are difficult or expensive to replace, such as decorative trim or the original siding. An further factor is that insurers may perceive older homes as posing a greater risk since they may have plumbing or electrical systems that have become obsolete. The condition of the home is also very essential, regardless of how recently it was built. Because leaking caused by a worn-out roof can cause expensive damage inside your home, insurers frequently pay extra attention to the roof.

5. Security and safety features in your home could result in a lower insurance premium for you.

If you install security or safety devices in your house that lower the likelihood of home insurance claims, your insurer may reward you with a discount on your premiums. If you install a security system or fire alarms that automatically warn local authorities, or even if you just secure your doors and windows with robust locks and deadbolts, you may be eligible for discounts on your homeowner’s insurance premiums, according to one insurer. 6 Obviously, you need to compare the possible benefits of each item against the expense of having that option, especially considering the fact that not all insurance companies provide the same discounts.

6. Insurance companies might look at your credit history.

Your homeowner’s insurance rate can go up or down depending on how you utilize credit. When determining premiums, insurance companies are permitted in certain jurisdictions to take into account a customer’s “insurance score,” which is derived from their credit history. Your insurance score is not the same as your credit score, but it is based on some of the same characteristics, like the amount of debt you have and your payment history. It is possible to raise your insurance score by employing the same strategies that you would use to raise your credit score, such as ensuring that all of your credit card bills are paid on time. 7

7. You Should Consider Purchasing Additional Forms of Coverage

Depending on the specifics of your case, you might want to think about purchasing other forms of coverage, either as an extension of your homeowner’s insurance or as a new policy altogether. If you reside in a region that is prone to natural disasters like earthquakes and floods and you want coverage, you will likely need to get additional insurance on top of your standard homeowner’s policy if you want it. This is the case even if you have the standard policy. 8 In a poll conducted by Consumer Reports, the members of the organization identified hailstorms as the primary cause of damage that led to the need to file insurance claims. You might have to pay an additional fee to cover the damage caused by hail. 9

8. Having a Higher Deductible Could Lower Your Monthly Premium

On your homeowner’s insurance policy, you might have the ability to select a deductible amount that is either larger or lower. Your initial contribution to the settlement of a claim is referred to as the “deductible.” For instance, if you have a deductible of $500 and your home sustains damage that needs to be repaired at a cost of $2,000, you would be responsible for paying $500 and the insurer would pay the remaining $1,500, presuming that it agrees with the cost of the repairs. Because the insurer’s risk is decreased when the deductible is raised, the firm may reward you with a lower premium in return.

9. Purchasing many types of insurance at once could save you money.

If you purchase numerous policies from the same insurer, you may qualify for a discount from that insurer. According to the estimates of one online brokerage, homeowners who purchase both auto insurance and homeowner’s insurance from the same provider can save an average of 20% on the cost of their homeowner’s insurance policy. 10

10. To Find the Best Deals, Shop Around for Insurance

If you look about at several places, you might find a better offer. One in eight respondents to the study conducted by Consumer Reports said that they had switched insurance providers within the preceding three years; more than half of these individuals stated that they did so because they were able to secure a lower premium.

The Takeaway

The price of homeowner’s insurance is determined by a variety of different factors. Some may be beyond your control, such as the size and age of your home, as well as the location in which you live. Some entail making choices, such as determining whether or not to purchase additional coverage, install additional security systems, or bundle insurance policies. Before making a choice, carefully consider all of the available possibilities. It is essential to give careful consideration to the question of how to safeguard one’s most valuable asset, which for the majority of people is their home.