Homeowners insurance is essential for protecting the asset that’s probably your biggest investment. While most states don’t require it by law, mortgage lenders typically make it a condition of your loan – and for good reason.
Nationwide, the average homeowner pays roughly $3,300 a year for homeowners insurance, but it’s possible that your cost of coverage could be much less – or much more. Your rate will depend on a wide array of factors, from your home’s location and age to your personal claims history. Since insurers price policies based on details unique to you and your property, understanding what they’re looking at can help you make sense of your quotes.
Here’s a closer look at a dozen key factors that influence how much you’re likely to pay for homeowners insurance.
Home characteristics
1. Location
Where you live is one of the most important factors that determine how much you’ll pay for homeowners insurance. To calculate your rate, insurers assess your perceived risk; in other words, how likely you are to file a claim. If your home is in an area prone to natural disasters like hurricanes, wildfires or hailstorms, you can expect higher premiums to reflect the increased risk.
Your zip code can affect pricing in more granular ways, as well. For example, homeowners in high-crime areas may be charged higher rates due to the greater risk of theft or vandalism. On the other hand, homes in close proximity to fire hydrants, fire stations and other emergency services may benefit from faster response time to a disaster, which can reduce risk and help lower your premium.
2. Replacement cost
Your home’s replacement cost, or the estimated expense to rebuild your home from the ground up, is another major factor that affects your premium. This isn’t the same as your home’s market value, which includes the land and is influenced by broader housing market trends. Replacement cost focuses strictly on reconstruction.
Insurers will typically ask you questions about your home’s characteristics to gauge how much it might cost to rebuild, such as the type of foundation and roofing materials, and the age of your home’s major systems like HVAC, plumbing and electrical.
The more expensive it would be to rebuild your home, the higher your premium will be.
3. Age of home
When your home was built factors into your insurance rates. Newer homes tend to cost less to insure because they’re built to meet modern safety standards and building codes, and are less likely to have age-related maintenance or repair issues.
Older homes that haven’t been updated tend to pose a higher risk for insurers, which means higher premiums for homeowners. Outdated systems, such as plumbing or electrical, are more prone to failure, and construction materials or methods that are no longer commonplace can be costly or complex to replace. Because of this, insurers typically ask the last time key components such as the roof, HVAC, electrical and plumbing were replaced.
4. Home size
Insurers take your home’s total square footage into account, along with details like the number of stories, bathrooms and custom features. Unsurprisingly, bigger homes take more material and labor to rebuild in the event of a loss. The bigger the home, the more it typically costs to insure.
5. Construction type
The materials used in your home’s construction are relevant to insurers because they will assess the structural integrity and durability of those materials. Homes built with fire-resistant materials like brick, concrete or stone (also known as masonry construction) are generally cheaper to insure than homes constructed primarily with wood, which is more susceptible to fire and storm damage. This is particularly true if you live in an area prone to natural disasters.
6. Roof type
Insurers pay close attention to your roof’s material, age, shape and condition to gauge how well it is likely to withstand hazards like fire, hail, heavy rain or wind. Roofs made of fire-resistant materials such as metal, slate or asphalt (the most popular roof material due to its affordability and relatively long lifespan) often qualify for lower premiums because of their longevity and durability. In contrast, roofs built out of wood can cost more to insure because they are more susceptible to damage from fire and severe weather. Some insurance companies won’t insure a home with a wooden roof at all.
If your roof is over 20 years old, most insurance companies will require an inspection of its condition before offering coverage, and your premiums could be higher. Some insurance companies may deny coverage altogether.
7. Smart home features
Theft and damage from fire and water can cause expensive claims. Many insurance companies offer reductions in homeowners insurance premiums for homes that have equipment that mitigates the risk of such perils. Equipping your home with features like leak detectors, smoke detectors, a video doorbell camera or a centrally monitored alarm system may entitle you to both rebates on the cost of the technology and ongoing discounts on your premiums. Such cost breaks are most likely with devices that are professionally installed and connected to a third-party monitoring service.
Policyholder characteristics
8. Claims history
When calculating your premium, insurance companies take into consideration your claims history at your current home as well as previous homes.
Claims records are compiled in a national insurance claims history report known as the Comprehensive Loss Underwriting Exchange (CLUE). Insurers generally see your claims history for up to seven years. If you’ve filed multiple claims within that time frame, insurers may view you as more likely to file again, which can lead to higher premiums. Because of this, you should carefully consider the ramifications before filing a claim for minor damage. If you can afford to pay out of pocket for repairs, that might be preferable if you want to keep your record free of claims.
9. Your credit history
In most states, insurance companies can use a credit-based insurance score as a factor when setting home insurance rates. These specialized measures, developed by the same credit agencies that create regular credit scores, focus less on your creditworthiness to pay your premiums than the likelihood you will file a claim. A low insurance score could mean paying higher premiums.
While using a homeowner’s credit profile is part of the underwriting process in most states, there are seven states where insurers are prohibited from using credit-based scoring to calculate home insurance premiums. Those states are California, Hawaii, Maryland, Massachusetts, Michigan, Oregon and Utah.
10. The size of your deductible
Your deductible is the amount you’re responsible for paying out of pocket before your insurance coverage kicks in. In general, choosing a higher deductible can lower your premium since you’re agreeing to cover more of the cost in the event of a claim. But while a higher deductible can reduce your monthly rate, it will cost you more if you file a claim. That’s why it’s important to choose a deductible you can reasonably afford.
Other factors
11. Crime and claims where you live
The rates of crime and claims where you live can affect what you pay to insure your home, even if you’ve never filed a claim yourself. Higher rates of reported property crime, such as burglaries, and of theft-related insurance claims, may help elevate your premiums. If your area has a high volume of claims for severe weather, your premium may be higher, too. However, adding or upgrading the home’s resistance to burglary (like adding security features like a video doorbell or motion-activated outdoor lights) or weather (like replacing an old roof) might help reduce your rate.
12. Local fire and emergency services
How well-equipped your local fire departments and emergency services are to respond to fires also plays into what you pay to insure your home. This is reflected in your community’s Public Protection Classification (PPC) score, as developed by the Insurance Services Office (ISO). A lower PPC score typically indicates better protection, often resulting in lower premiums. On the other hand, if you live in an area with a higher PPC score – meaning that the resources to respond to fires are limited or farther away – your insurance rates may be higher to reflect the added risk.
According to a recent report from The Money.com, homeowners insurance is a crucial investment for protecting your biggest asset – your home. While it may not be required by law in most states, mortgage lenders typically make it a condition of your loan. This is because homeowners insurance provides financial protection in case of unexpected events such as natural disasters or accidents.
On average, homeowners in the US pay around $3,300 a year for insurance, but this cost can vary greatly depending on a number of factors. Insurers take into account various details unique to you and your property when determining your premium, so understanding what they look at can help you make sense of your quotes.
Here are 12 key factors that can influence the cost of your homeowners insurance, as reported by The Money.com.
1. Location
Where you live is one of the most important factors that insurers consider when calculating your rate. This is because your location can affect your perceived risk of filing a claim. For example, if you live in an area prone to natural disasters like hurricanes or wildfires, you can expect to pay higher premiums to reflect the increased risk.
Your zip code can also have a significant impact on pricing. Homes in high-crime areas may be charged higher rates due to the greater risk of theft or vandalism. On the other hand, homes located near fire hydrants and emergency services may benefit from lower premiums due to faster response times in case of a disaster.
2. Replacement cost
The estimated cost to rebuild your home from the ground up, also known as the replacement cost, is another major factor that affects your premium. This is different from your home’s market value, which includes the land and is influenced by broader housing market trends. Replacement cost focuses solely on the cost of reconstruction.
Insurers will ask you questions about your home’s characteristics, such as the type of foundation and roofing materials, and the age of major systems like HVAC, plumbing, and electrical. The more expensive it would be to rebuild your home, the higher your premium will be.
3. Age of home
The age of your home is also taken into consideration when determining your insurance rates. Newer homes tend to cost less to insure because they are built to meet modern safety standards and building codes. They are also less likely to have age-related maintenance or repair issues.
On the other hand, older homes that have not been updated may pose a higher risk for insurers, resulting in higher premiums for homeowners. Outdated systems, such as plumbing or electrical, are more prone to failure, and materials or construction methods that are no longer common can be costly or complex to replace.
4. Claims history
Your personal claims history can also impact your homeowners insurance rates. If you have a history of filing multiple claims, insurers may see you as a higher risk and charge you higher premiums. On the other hand, if you have a clean claims history, you may be eligible for discounts on your premium.
5. Credit score
In most states, insurers are allowed to consider your credit score when determining your homeowners insurance rates. This is because studies have shown a correlation between credit score and the likelihood of filing a claim. A higher credit score can result in lower premiums, while a lower credit score may lead to higher rates.
6. Home size and type
The size and type of your home can also affect your insurance rates. Larger homes typically cost more to insure because they have more square footage and more valuable contents. Similarly, homes with unique features or custom designs may also have higher premiums due to the increased cost of rebuilding.
7. Deductible amount
Your deductible, or the amount you are responsible for paying out of pocket before insurance coverage kicks in, can also impact your premium. A higher deductible can result in lower premiums, but it also means you will have to pay more in the event of a claim.
8. Home safety features
The safety features of your home, such as smoke detectors, security systems, and fire extinguishers, can also affect your insurance rates. These features can help reduce the risk of damage or loss, resulting in lower premiums.
9. Swimming pool or trampoline
If you have a swimming pool or trampoline on your property, you may be charged higher premiums due to the increased risk of accidents and injuries. Some insurers may even require additional liability coverage for these features.
10. Pets
Certain dog breeds, such as pit bulls or Rottweilers, may result in higher insurance rates due to their perceived risk of causing harm. If you have a dog, it’s important to disclose this information to your insurer to ensure you have adequate coverage.
11. Previous insurance coverage
If you have had previous homeowners insurance coverage, this can also impact your rates. A history of continuous coverage can result in lower premiums, while a gap in coverage may lead to higher rates.
12. Bundling policies
Many insurers offer discounts for bundling multiple policies, such as homeowners and auto insurance. This can result in significant savings on your premiums, so it’s worth considering when shopping for insurance.
In conclusion, there are many factors that can influence the cost of your homeowners insurance. By understanding these factors and shopping around for quotes, you can find the best coverage at a price that fits your budget.
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