Homeowners insurance covers your dwelling and personal property—and it protects you from financial loss if your home is damaged in a covered event, such as a fire. While homeowners insurance usually isn’t required by law, it is typically required by your lender.
- A lot of variables go into determining how much you pay for homeowners insurance, so prices can vary.
- Selections of additional coverage options, called riders, can also impact the cost of your homeowners insurance.
So you’ve bought your first home — congratulations! You’ve probably already noticed that owning a home comes with quite a few additional costs like taxes, possible HOA fees, and insurance.
Insurance could mean protection against unexpected events and/or disasters. In the current economic climate, it pays to be financially aware. Knowing how much homeowners insurance costs can help you be prepared in more ways than one.
What Is Homeowners Insurance?
Homeowners insurance could cover natural disasters as well as accidents. Depending on the policy, it might cover damage to the house, loss of use, and damage to/loss of contents.
Homeowners insurance could cover many possible situations, including fire, storm damage, burglary, and other accidents.
Note that standard homeowners insurance doesn’t cover floods or earthquakes and a few other situations. If you live in a high-risk area, you’ll need to purchase separate insurance policies to make sure that you’re protected from situations that may occur in your area. However, it may be challenging to obtain certain types of insurance coverage for very high-risk areas or certain types of homes.
Does Everyone Need Homeowners Insurance?
Homeowners insurance isn’t required by law, but it is often required by lenders. This means that if you have a mortgage, your bank or lender could possibly insist that you carry insurance to protect your investment and theirs. If your homeowners insurance policy cancels they could force place insurance on the property and the coverage premium is typically much higher than the homeowners policy that cancelled.
Your homeowners insurance could be paid for through the escrow account attached to your mortgage if it is set up to do so.
What Are Some Types of Homeowners Insurance Coverage?
Homeowners insurance is organized into a system that identifies each category of insurance using a numbered code, with eight different categories altogether. For example, HO-1 insurance covers the homeowners personal belongings in specific situations. HO-6 covers condo owners, and HO-7 covers mobile homes.
Different types of homeowners will need to choose and pay for different insurances. In some cases, the best coverage comes from combining several types of insurance policies.
In addition to categories, there are four general types of homeowners insurance that everyone should know about.
- Dwelling Insurance
Dwelling insurance covers the physical structure of a home. Dwelling coverage could potentially include a leaky roof, storm-damaged windows, or a fire-ravaged home. It does not include any of the items inside the home, like furniture or other personal items.
- Personal Property Insurance
Personal property protection could cover items inside of the house, including furniture, clothes, decorations, and all of your other personal belongings. It also covers things like jewelry, electronics, and keepsakes typically with a maximum dollar amount for each item. Some items may not be covered and proof of some items may be required.
These types of items can have a value much higher than what homeowners insurance covers.A good way to protect these belongings is to get separate policies on their personal valuables or schedule them as a rider or endorsement.
- Liability Insurance
If your dog bites the mailman, are the medical bills covered by insurance? Possibly yes, via liability coverage. Liability insurance covers medical payments and may cover any legal expenses if someone who doesn’t live in your house is injured there. There are also special insurance policies that cover animal liability, which are worth looking into if you’re a pet parent.
- Other Structures Insurance
As the name explains, other structures coverage covers structures that are part of the property but not directly attached to the house. This includes things like garages, sheds, and even fences, treehouses, and other decorative or recreational structures.
Other categories of homeowners insurance are usually for specific events excluded from regular policies. Some of these include flood and earthquake insurance, sewer insurance, and umbrella insurance, which provides coverage that goes beyond the financial limits of your regular home, auto, boat etc. policies.
How Much Does Homeowners Insurance Cost?
Now for the moment of truth: How much does homeowners insurance actually cost?
Depending on your perspective, it’s really not that much. According to the National Association of Insurance Commissioners, the national average is around $1,800 annually in homeowners insurance premiums. That specific estimate breaks down to about $150 per month, spread out and included in your monthly mortgage payments.
Home insurance rates vary depending on where in the country you live. Homeowners who live in California, Louisiana, or other states prone to natural disasters like hurricanes, wildfires, and floods could possibly pay higher yearly home insurance premiums. In states with calmer weather, premiums could potentially be lower.
What Determines the Price of Homeowners Insurance?
All insurance is assessed according to risk, and homeowners insurance is no different. The cost of your insurance depends heavily on how much risk your home is in, which is why California dwellers may pay higher premiums in case of wildfires or earthquakes.
Here’s a list of things that could potentially impact the price of your homeowners insurance:
Location, Location, Location
Where you live is one of the biggest factors in the cost of your homeowners insurance. This isn’t only because of natural disasters, as in the case of California and Texas. Some types of homes could potentially pay higher homeowners insurance rates than others simply because their home is much more expensive to rebuild.
For example, Tornado Alley runs through Texas, Oklahoma, Kansas, and more, this could make these states more expensive in terms of home insurance quotes.
In terms of lower insurance premiums, the cheapest states include, Vermont, and Delaware.
Where you live might matter on a micro-level too. If you live near a fire department, your premiums might possibly be lower. If you live in an area with high crime rates, your insurance quote could possibly be higher. If real estate is expensive in your area, the cost to rebuild will be too, so anticipate higher rates in these areas.
Age of House
Older homes have pros and cons when it comes to homeowners insurance. They’ve lasted a long time and are often made of safe, sturdy materials with a low risk of falling apart. On the other hand, they’re also made of old materials, which could potentially be at a high risk of being outdated, needing replacement, or falling apart, possibly leading to more renovations.
Older houses also have classic features which look great, but might have higher replacement costs if a homeowners insurance claim is filed. Home insurance companies could figure that into your premiums.
The cost to rebuild your house (if something should happen) will be higher if your house is made of more rare and expensive materials. This is likely to be reflected in your rates. Insurers take into account how much it costs to replace or rebuild your house when evaluating the total amount of the policy. Some materials are simply more costly than others.
This doesn’t mean that you need to replace your classic brickwork with vinyl siding. It simply means that if your house is made of more expensive materials with a lot of classic features, it will probably be reflected in your homeowners insurance payments.
We’ve already broken down how the safety of your home’s location could figure into the cost of your homeowners insurance. The physical safety of the home is also a factor.
This means that things like alarm and security systems are considered when your home is assessed for insurance purposes, along with how well-maintained the property is. If your homeowners insurance policy covers burglary and vandalism, and you have measures in place to prevent those things, your insurance costs could be lower.
This also extends to things on the property that could be considered “attractive nuisances.” This includes items such as trampolines, treehouses, swimming pools, fire pits, and anything else that improves the property, but carries a risk of injury or danger. They’re a lot of fun, but they can impact your insurance rates.
The amount of your deductible, additional coverage riders, and other selections can affect how much you pay for homeowners insurance. A deductible is the amount of money that a homeowner is responsible for if a covered event should occur. A higher deductible means that the homeowner is willing to shoulder a larger portion of the financial cost of replacement. As a result, an insurer will typically offer a lower premium. A lower deductible results in a higher premium.
Additional coverage, such as adding earthquake insurance or a valuable personal property rider will likely increase your premium, because you are adding more protection.
Choosing “cash value” rather than “replacement cost” coverage is usually more affordable, but understanding the difference between the two is very important. With “cash value” coverage, the insurer pays the depreciated cost of your belongings if they are lost in a covered event. With “replacement cost,” the insurer pays what it would cost to replace or rebuild at current prices. The difference can be substantial.
While it’s certainly peaceful and natural to live on the beach or on the side of a mountain, these locations are riskier than a suburb on the plains. With natural environments come natural disasters. These are assessed as a risk when it comes time to set the cost of your homeowners insurance premiums.
You may not realize it, but insurance companies also use your personal data to calculate how much you should pay for homeowners insurance. This happens in surprising ways.
For example, married people tend to pay less for homeowners insurance than single people do. This is because, according to the statistics, married people file claims less often and have fewer accidents than single homeowners do.
Your personal credit history could possibly also impact your homeowners insurance expense. In some states, the higher your credit score, the less of a risk you pose to your insurer, potentially translating to lower rates. However, this is not legal in every state.
As of 2022, California, Hawaii, Maryland, Michigan, and Massachusetts ban or limit insurance companies from factoring credit scores into their policy rates. Washington State has a similar law as of March 4, 2022, that is set to last three years. Along similar lines, Oregon and Utah also restrict the use of credit history in certain instances pertaining to insurance policies.
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The Bottom Line
Buying a home is a big financial investment — protecting such an investment is critical. One of the ways to do that is by having homeowners insurance.
The cost might seem high, but it’s calculated carefully according to the risks surrounding your home. It’s worth it in case there were an incident and you would have to rebuild part or all of your home.
To find out more about homeowners insurance and other types of insurance a homeowner might need, check out Guaranteed Rate Insurance’s Homeowners Insurance page to get a free quote from an Expert Insurance Agent. Our searching gets you savings.*
Homeowners Insurance | NAIC
*Savings, if any, vary based on the consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply. Source: Guaranteed Rate Insurance internal survey data of average savings by new customers who saved from November 2021-January 2022.
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