Your home is your most expensive asset, and protecting it can be expensive. There is no easy answer to the question of how much home insurance costs.
The short answer is, it depends.
“There are many more rating factors than ever before in our industry as computer systems get more sophisticated,” says Craig Peterson, owner of an American Family Insurance agency in Overland Park, Kansas.
He said the price depends on the location, condition and value of the home, the type and amount of coverage, the deductible, the owner’s credit, the claims history and more.
Types of coverage and how much to buy
Before we go too far, there are some basics you need to understand about homeowners coverage that affect the cost of the policy.
There are three basic types of coverage that determine how much you will receive after a covered disaster.
- Actual Actual Value: Covers structure and content based on their current value, not what you paid for.
- Replacement cost: Covers the structure and contents based on what they cost now up to the value of the policy.
- Guaranteed or Extended Replacement Cost / Value: Covers structure and contents at current cost to rebuild or replace up to a certain percentage above the policy limit.
This post has more information on what homeowners insurance actually covers (and where you are on your own).
The cost of the policy also depends on how much you’ve insured the home, how much liability coverage you have, and other factors.
Many people are underinsured and that can create problems, especially for people who only have the minimum coverage necessary to satisfy a mortgage company.
“Many people think, I am covered. My mortgage company says I’m covered, they don’t require me to do anything else. I don’t want to pay more for insurance, but you may not be fully protected, ”says Mark Friedlander, director of corporate communications for the Insurance Information Institute in New York. “If you have to completely replace the property, you may fall short in terms of what is the value of rebuilding that house today.”
What Determines the Cost of Homeowners Insurance?
Location is key in determining how much home insurance costs. According to data from the National Association of Insurance Commissioners, premiums nationwide increased 3.3% between 2017 and 2018, which is the most recent data available.
The report published in January 2021 also said that premiums tend to be higher in densely populated areas because construction costs and real estate values tend to be more expensive there. The same goes for areas that are popular with retirees and vacationers.
If your area is prone to disasters like hurricanes, wildfires, tornadoes, or earthquakes, prepare to pay more.
Peterson said state regulations also make a big difference in how much insurance costs.
When you first contact a policy purchase, the agent will likely need:
- Address of the home.
- Previous inspection reports.
- Previous insurance information.
- Lender requirements.
- Information about who lives in the home, including pets.
While the amount and type of coverage are the biggest determinants of price, there are many other factors.
The condition of the home is important. It has remained? How old are you? What kinds of building materials were used? What is the condition of the roof?
Insurance companies are looking at the likelihood of the homeowner making a claim, which is the amount of risk the insurer is willing to take to cover it.
Companies usually consider:
- Previous claims of the owner.
- Previous claims related to the property. If there have been multiple claims in the past few years, the rates will likely increase or the property will not be eligible for insurance.
- In some states, a homeowner’s credit history affects rates.
The location of the house within the city is also important. How close is the nearest fire hydrant? How about proximity to a police or fire station?
The neighborhood and the claims history within it, as well as the crime rate in the area can also make a difference in rates.
Adding endorsements to cover particular conditions to policies can also affect rates.
Even if you are trying to cut your premium costs, make sure you have enough liability coverage in case something happens and someone sues you or has to pay to replace something expensive. If you don’t have enough coverage, the courts can go after your assets, so adding a general liability policy might be a good idea, Peterson said.
“One of the biggest liability claims is dog bites,” he said. “Homeowners liability and insurance coverage will extend to children and pets.”
In short, the more coverage you have and the more comprehensive it is, the more you will pay in premiums.
Shopping can save you some money.
“We always recommend that when you buy any type of insurance, you get multiple quotes,” recommended Friedlander. “You want to compare apples to apples and make sure you are looking for the same type of coverage.”
How to Lower Your Homeowners Insurance Rates
If your home insurance premium is too much for your budget, there are some things you can do to lower your rates.
But keep in mind that freebies do not exist. While doing these things can lower your premiums, they will likely cost you money in other ways as well.
Increasing your deductible or the amount you pay out of pocket before your coverage begins is one of the easiest ways to lower your premiums. Friedlander said that increasing a deductible from $ 500 to $ 1,000 can save you up to 25% on your premium.
“What we always tell consumers is that if you’re going to increase your deductibles, make sure you have the finances to back it up. You have to understand that you are going to have to pay that money out of your pocket if you have claims that do not reach that level, “he said.
Raising the deductible also means that you will have to absorb the costs of some repairs, such as fixing a broken window or a leaking pipe, as it will likely cost less than your deductible.
Also, some policies have different deductibles for different perils. For example, the hurricane deductibles for a policy in Florida are usually a percentage of the total amount of coverage, while the deductible for something like a fire is usually a fixed amount.
You can also change the amount of your coverage or the type of coverage, but remember how much these changes will cost you if you make a claim.
Peterson said that making some additions or repairs to your home could also lower your premiums. Those additions and repairs can include:
- Install a security system that is monitored by a central station or police station.
- Adding smart home features like video doorbells and Wi-Fi thermostats.
- Installation of smoke detectors.
- Adding a home fire sprinkler system.
- Roof replacement.
- Plumbing upgrade.
If you are renovating, plan ahead and use safer materials. For example, concrete and steel structures may cost more to build than wooden ones, but cement and steel can be cheaper to insure due to their lack of flammability.
Friedlander said loyalty can matter too. If you’ve been with the same insurance company for many years, they may offer you a discount. Your premiums may also be discounted if you combine your coverage and have your auto insurance and home insurance with the same company.
Another way to save is knowing how to file claims. While we have insurance to protect us financially from disasters, filing a claim worth just a few dollars more than your deductible could result in a rate increase that could end up costing you more in premiums over time or could result in a non-renewal. .
“Your homeowners insurance is not a maintenance plan. It’s for large incidents that are unexpected and you can’t pay for them or don’t want to pay for them out of pocket, ”Peterson warned.
Also, don’t file too many claims in a short period of time.
“Be claims free. If you have a clean record and haven’t filed a claim in X number of years, they consider you a low maintenance customer, that’s also one way you could save, ”Friedlander said.
Check for discounts through your credit or union, employer, association memberships, etc. Your age or marital status may also entitle you to a discount.
Paying off your mortgage can also lower rates, as insurance companies sometimes think that you will take better care of your property if you own it directly.
Peterson also recommended reviewing your existing policy every few years.
“It’s a good idea to have at least one review just to make sure you still have enough coverage for the home or maybe you have too much,” he said, adding that insurance companies automatically adjust coverage based on an index rather than a the real life.
“What we find sometimes is that if someone hasn’t reviewed their policy for, say, 10 years, sometimes we find that their coverage is too high and they are paying for something that they don’t really need,” he said.
Consider more than price
While getting the lowest possible premium sounds like a great idea, experts say it’s important to consider more than just price.
“When you’re shopping for insurance, be sure to look for financially sound carriers that have an A rating,” Friedlander said. “You want to make sure they are financially sound and know that you will be protected from a loss and that they have the assets to pay the claims. You want to make sure you are protected by an insurer that has the financial capacity to handle thousands of claims and is in a position to cover all of its policyholders for major losses. “
He also suggested looking for a company that has a history of responding quickly to complaints. You don’t want to have to pay a lot out of pocket for repairs and living expenses while you wait for your insurance claim to be processed. Find out who handles claims and if they are licensed adjusters or something like a third party call center.
Other things to consider:
- Licenses in your state: Some states have more stringent regulations than others. You want a provider that is legitimate and credible.
- Complaints: Visit your state department of insurance and check for complaints against the companies you are investigating.
- Insured satisfaction: Ask the company how many of its policyholders renew each year.
After a disaster, it is not the right time to find out that you chose the wrong insurance company.
“Financial security is more important than price. Obviously, you want to be competitive and you don’t want to overpay, but you certainly want to make sure that the insurer you choose is financially sound and will protect you when you need it to be there, ”Friedlander said.
Tiffani Sherman is a Florida-based freelance reporter with over 25 years of experience writing on finance, health, travel, and other topics.