Your home is usually one of your biggest investments—and one of your most valuable assets.
Homeowners insurance is your protection for that investment. With several options available for coverage, a lot of homeowners wonder how much homeowners insurance should cost.
There’s no simple answer to this question. That’s because there are many factors that go into determining how much an individual homeowner will pay for homeowners insurance.
Let’s explore some of them below.
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Homeowners insurance costs can vary dramatically from one state to another and even among individual homeowners.
States regulate insurance companies. Regulation affects insurers in various ways. They must abide by the rules for what they can charge and how they do business in each state. Insurance companies also use certain factors to calculate your premium.
Here’s one example: Credit scores are frequently used in determining premium costs for insurance products, including auto and homeowners insurance. Insurers like to use credit scores because they are an established indicator of debt payment history. However, some states either limit or ban insurance companies from using credit history when determining rates.
With so much variation, nailing down a single answer can be tricky.
What Are Some Homeowners Insurance Cost Factors?
There are many different cost factors that affect homeowners insurance premiums. Some of these factors have to do with where you live. Some have to do with the cost to rebuild in your area. Others are impacted by decisions you make.
Here are some examples:
Where You Live
This is an essential component in calculating your homeowners insurance premium. If you live in a high-crime area, your rates will be higher. If you live in Tornado Alley or on the Gulf Coast near hurricane, your rates will be higher. The potential destruction from natural disasters plays a significant role in determining the premium cost for your homeowners insurance policy.
How Much It Would Cost to Rebuild Your Home
Homeowners insurance is designed to protect you in worst-case scenarios. Replacement cost is an important factor in this calculation. However, there are many factors that go into this.
Supply chain and labor issues have recently caused construction costs to increase drastically. This problem is especially severe in some parts of the country. This can impact your homeowners insurance rates.
The Age and Condition of Your Home
As a home ages, it becomes more likely that important components will break down. It can also become harder to find comparable materials for repairs on older homes.
Because of these and other factors, an older home is typically more expensive to insure than a new one. Specifically, insurance carriers will take into consideration the age and condition of your roof. Unless the house is over 40 years old, the rest of the structure is generally less of a concern.
The Amount and Type of Coverage
It might seem obvious that the more coverage you select, the more you’ll pay, but it’s worth explaining. A basic homeowners insurance policy covers two aspects: It covers the physical structure of your house. This is known as “dwellings coverage”. It also covers what you own, known as “personal property coverage”.
Ensure your home is insured for an adequate amount. This amount should be enough to rebuild your home and replace your possessions. For your personal property as well as the dwelling itself, you can choose between “actual cash value” or “replacement cost coverage.” This decision will have an impact on your premium.
This one is straightforward: The higher your deductible, the cheaper your premium will be. It is important to note that some insurance carriers offer lower deductible levels. This is based on state requirements. Additionally, some coverages, such as wind and hail, may have a separate deductible depending on your location.
Selection of Additional Riders
For each additional coverage you add to your policy, you can expect to pay more on your premium. Consider the potential risks you may face. In certain areas, you may need to purchase earthquake insurance, flood insurance, or other specialized coverage.
What You Do for Fun
Swimming pools and trampolines can be fun for the whole family, but they have the potential to cause injuries. If someone outside your immediate family is hurt, there is an increased liability risk. Having a pool or trampoline can increase the cost of your homeowners insurance.
Update your policy if you add a pool or trampoline to your home. Some carriers will deny coverage if these new risks are not disclosed. Ensure you disclose these new risks to avoid denied coverage.
The Type of Dog You Have
Millions of Americans own dogs, and while dogs of any size can bite, larger breeds can cause more damage. Some insurance companies even have restrictions on certain dog breeds. Again, this comes down to liability risk factors, which may have an impact on how much you pay for homeowners insurance.
What Is the Difference Between Homeowners Insurance and PMI?
Homeowners insurance protects you financially if your home is damaged or destroyed by a covered event, such as an accidental fire. Private mortgage insurance (PMI), however, protects the lender—not you. Borrowers may be required to buy PMI if their down payment is less than 20% of the home’s purchase price. This is often part of the loan agreement.
So, while PMI and a homeowners policy are both types of insurance, they offer financial protection to different parties. Homeowners insurance protects you from losses. PMI safeguards a lender’s financial interests if you default on your mortgage.
How Can I Reduce the Cost of Homeowners Insurance?
It’s possible for a homeowner to lower their insurance cost. They can do this by bundling, increasing their deductible, or installing alarms and other smart safety features. These actions will reduce their risk and, as a result, their premiums.
Bundling Your Insurance Policies
Bundling is one of the most popular ways to see if you could save money on your homeowners insurance*. If you have an auto policy and home insurance policy with one insurer, you could save by bundling.
Increasing Your Deductible
Another way to reduce the cost of your homeowners insurance is by increasing your deductible. The deductible is the amount you must pay out of pocket in the event of a covered loss. This amount is taken off the total cost of repair or replacement.
A higher deductible indicates you are taking on more financial responsibility. Insurers often reduce your rate in response. However, it’s important to make sure that you can comfortably afford your deductible in case of an emergency.
Reducing Your Risk Factors
There is a variety of home protection devices available. These devices can detect problems around the home before they become too costly to repair. By reducing your risk of a claim, you are protecting your home—and insurers will frequently offer discounts on your premium.
Smart-home features such as burglar alarms, sprinkler and fire suppression systems, and leak detectors can bring you peace of mind. They can also potentially save you money. Discounts can vary between companies. To find out which systems are eligible, contact your insurance agent.
There are also other ways you may be able to reduce your premiums. For example, if you have a dog, you could get a lower rate by completing a Canine Good Citizen class.
What Is the Average Cost of Homeowners Insurance?
As has been explained above, “average cost” is hard to pin down with so many variables. The National Association of Insurance Commissioners’ 2021 Report states that the average cost of homeowners insurance is $1,249 a year.
This is an average of data from various states. California is one such state, with a high risk of wildfires and earthquakes. States along the Gulf Coast face a heightened risk of hurricanes and coastal flooding.
Even within a particular state, homeowners insurance rates can sometimes vary dramatically. To find a great rate for you, either call an agent or go online to compare your options.
It is essential to compare products with similar coverages, liability limits, and discounts. Make sure to take advantage of any discounts that may be available.
If you find a company offering a lower homeowners insurance rate, consider if it also offers car insurance. If it doesn’t, you won’t be able to get a “bundling” discount. This should be factored into your comparison.
Which States Have the Highest Homeowners Insurance Rates?
Insurance Business Magazine from 2021 reports that the states with the highest homeowners insurance rates are:
- Oklahoma: As a Plains State located in what is known as “Tornado Alley,” Oklahoma can see high winds, tornadoes, and hailstorms. Homes in the eastern portion of the state are also vulnerable to flooding.
- Nebraska: Also located in Tornado Alley, Nebraska shares many of the same risks as Oklahoma.
- Kansas: Like its neighbors, Kansas is susceptible to windstorms, blizzards, tornadoes, hail, and flooding.
- Arkansas: The Natural State has surprising risk factor. One of the nation’s largest fault lines runs through it. The New Madrid Seismic Zone suffered earthquakes from 1811 to 1812. Reports say they caused church bells to ring in Philadelphia.
- New Mexico: Rounding out the top five is New Mexico. The Land of Enchantment has a higher risk for earthquakes. It’s also prone to flooding.
States which experience more natural disasters have higher homeowners insurance rates. Where you live in the state, the age and cost to rebuild your home will also affect the rate.
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How can I get a quote for homeowners insurance?
With so many variables in play, it makes sense that people wonder how much homeowners insurance should cost. There are ways to make homeowners insurance more affordable. Consider bundling your policies or increasing your deductible. Before switching carriers for a lower rate, make sure you are comparing the same benefits.
Your home isn’t just one of your most expensive assets; it’s where you live. Be sure you are protected against financial loss if the worst should ever happen. Guaranteed Rate Insurance can help you compare quotes from top-rated carriers to find the best rate for you. Start comparing quotes online or talk to an Expert Agent today, and see if you could save on your insurance!
*Savings, if any, vary based on a consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply.
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