According to the Insurance Information Institute, the average cost per year for homeowners insurance in the United States is $1,272. But looking at an average cost across the United States doesn’t actually tell you much because there are so many different factors at play in determining homeowners insurance rates.
If you’re wondering how much homeowners insurance will cost you or why your homeowners insurance rates are so high, there are several key aspects to consider. Your home’s value and where you live play a huge role in your homeowners insurance rates, but those aren’t the only factors at play.
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What Is Included in Homeowners Insurance Rates?
Your homeowners insurance rate is the amount you’ll pay annually to have this layer of protection on your home. Typically, homeowners insurance helps cover the following:
- Personal Property. These are your personal items that are inside your home. Usually, most of your property is covered, but if you have expensive art, jewelry, electronics, etc. you might need an additional policy or a rider for these high-value items.
- Dwelling. The biggest part of your homeowners policy is probably the home itself. Dwelling coverage usually includes the entire home from the roof down through the foundation. It may cover both attached and unattached structures, like a garage and deck.
- Loss of Use. Loss of use is also referred to as additional living expense coverage and it’s there to help if you suffer a covered loss, like a fire, and you have to live somewhere else while the damage is repaired.
- Personal Liability. This protects you from lawsuits filed by others for bodily injury or property damage that is your fault.
- Medical Payments. The medical payments portion covers expenses for people injured on your property regardless of fault, even if your pet injures them.
This illustrates how a homeowners insurance policy covers your home and a lot more. That’s part of the reason rates might seem expensive – there’s more coverage than you realize. The added coverage is also part of the reason that the value of your home is not the only factor used to determine how much your homeowners insurance will cost.
What Factors Impact Homeowners Insurance Cost?
When shopping for homeowners insurance or comparing rates, the following factors will have a big impact on your insurance costs. In some situations, you might be able to adjust these factors to get a better rate.
Policy Deductible
Your homeowner’s deductible is the amount of money you pay out of pocket before your insurance chips in to help pay for damages, loss, or other covered incidents. If you’re willing to have a higher deductible and pay more out of pocket at the outset, then your insurance will pay less of your claim, so you’ll have a lower policy rate. This is one area where you can make adjustments to change your rate.
Location
Location isn’t just important when you’re buying your home, it’s also important when your insurance carrier is determining your rates. Some locations have more natural disasters, others are more prone to crime. Even how close a fire hydrant is to your home can affect your homeowners insurance rate.
Oftentimes, your insurance agent will use your ZIP code as a determining factor when considering your location. If you think the ZIP code doesn’t tell the whole story, you might be able to explain why your area is safer than surrounding ones in the same ZIP code.
Home Replacement Cost
The replacement cost of your home is exactly what it sounds like–what it would cost for builders to rebuild the home in basically the same way. It is not the same as the market value of your home.
People who live in older homes with unique and expensive details will want to take a close look at how the home replacement cost is determined. These homes cost more to build than modern homes and some insurers are not willing to cover the full cost of replacement.
Age of Home
The age of your home is important for insurance reasons when you’re considering home replacement costs. It’s more expensive, usually, to rebuild an older home than a new one. This is especially true if there are details like stained glass windows, hardwood floors, ornate moldings, and other decorative features. These items were more affordable in the past and harder to come by today, meaning they’ll cost more than new home features.
Credit History
Your credit history can play into your insurance rates. Your insurance company is going to look at your payment history, outstanding debt, how much new credit you’re accumulating, and how long you’ve had credit to determine what your rates will be.
This isn’t meant to punish you if you have a low credit score or if you’re just starting out. Insurance companies love to look at statistics and people with lower credit scores and short credit histories tend to have more claims than people with more established credit histories.
Claims History
Insurance companies have found that people who have previously made insurance claims are more likely to make them in the future. This means if you have filed a homeowners insurance claim in the past, you’ll probably be charged more for your homeowners insurance policy than someone who has never filed a claim. This is another situation where they’ve examined statistics and determined that this is a key factor in the likelihood of them having to pay out for a claim.
Home Safety Conditions
One thing that can bring down homeowners insurance rates is having additional measures of home safety and security. Not only will these steps help protect you, but it makes it less likely that you’ll suffer a covered peril, and your insurance company will like that. Consider having a home security system, sprinkler system in case of a fire, impact-resistant garage doors and windows, and water leak sensors.
Roof Condition
Replacing a roof is a major expense, so your insurance company will look at the condition or age of your roof and figure that into your homeowners. In some situations, your insurance will only cover a percentage of your roof, based on the expected lifetime of the roof and its age. Other companies will expect you to pay more if your roof is older because it’s more likely to fail. There are different ways to handle roof coverage and they can make a big impact on your homeowners insurance rates.
Additional Varying Factors
The above are all important factors in determining your homeowners insurance rates, but the following may also be considered:
- Proximity to the nearest fire station
- Dog breeds you own
- Attractive nuisances” such as pools or trampolines
- Wood-burning stoves or fireplaces
- Distance from water
- Marital status
- If you have a home-based business
The level of significance that’s put on these factors can vary by insurance company, which is why it’s so important to shop around. It’s also a good idea to compare each element of coverage to make sure they’re lining up in the same way across different insurance companies.
How To Keep Homeowners Insurance Costs Manageable
If you want to lower your homeowners insurance costs, there are some steps you can take to potentially drop your rates.
- Change insurers. A little comparison shopping never hurts, and it can uncover better deals on your insurance rates.
- Improve your credit rating. Your credit rating and history play into your insurance rates, so any improvement is to your benefit.
- Update outdated wiring and plumbing. Older homes often have older wiring and plumbing that insurance companies consider more dangerous than modern versions. An update can help you get a lower rate.
- Add security features. Add a security camera, water leak sensor, impact-resistant garage door, and other features that your insurance company sees as a bonus.
- Look for discounts. Many insurance companies offer substantial discounts for people who bundle all of their insurance needs, but those aren’t the only discounts available. Ask your agent what discounts they offer and then take advantage of as many as you can.