Factors that impact your cost of homeowners insurance

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The average premium for homeowners insurance in the U.S. is $1,312 per year. However, what impacts home insurance rates largely depends on a variety of factors — some of which you might expect, while a few others may be surprising. Square footage certainly plays a big part, especially when it involves calculating replacement costs, and location is also a major consideration. Naturally you might expect the age of the home to have an impact too.

But other elements can alter how much you pay. Homeowners insurance varies from person to person because there are several personal factors used to calculate home insurance rates. Marital status, credit history and even your dog’s breed could affect the amount you pay in premiums. Understanding what insurers use to determine your rates is helpful as you are navigating through the numerous choices for homeowner insurance companies and coverage options.

Factors that impact your home insurance rate

Insurers note several factors that affect home insurance costs and determine your risk profile as a homeowner. A risk profile simply means how likely you are to file a claim or your home will need a claim. Keep in mind, an insurance carrier’s ultimate goal is to spend as little as possible. When an insurer weighs the multiple factors and determines there is a higher chance of a claim taking place, then it increases the home insurance rates. The following factors impact your home insurance rates:

  • Replacement cost
  • Credit history
  • Claims history
  • Marital status
  • Age of home
  • Deductible
  • Location

Replacement cost

Sean Harper, co-founder and CEO of Kin Insurance, explained the more your home costs to replace, the more you will likely pay in coverage to insure it.

Replacement cost takes a lot of variables into consideration, like your home’s total square footage, local construction costs, the home’s construction, its unique features and architecture, number of rooms, etc.,” Harper said. “That said, you can get a rough estimate of replacement cost by multiplying your home’s square footage by local construction costs per square foot.”

Harded added “people often confuse the home’s market value for its replacement cost.” The numbers may match up, but it is not guaranteed since your home’s replacement costs may either outweigh its current market value or fall under it. This is because market value accounts for how intangible features such as the neighborhood, view, land and proximity to local amenities impact a property’s attractiveness to buyers. In contrast, replacement costs only refer to the expense of rebuilding a home after a loss.

Credit history

Like bank lenders, many insurers check homeowners’ credit in assessing the level of risk they are taking on. A good credit score could lead to being perceived as lower risk and rates are often reduced accordingly. Insurers often use credit as an indicator of your likelihood to make timely premium payments. Furthermore, insurers feel homeowners with poor credit are more likely to file claims under their policy than are homeowners who have very good credit.

“Most insurance carriers use credit as a portion of the rate-setting process in states where it is permitted,” said P.J. Miller, partner and independent insurance agent with Wallace & Turner Insurance in Springfield, Ohio. “While it is supposed to be a ‘portion’ of the rate calculation, most believe it plays a significant role in determining the price for homeowners insurance.”

Claims history

Insurance companies often base decisions on patterns of behavior. When a homeowner files a claim, the homeowners insurance company assumes he or she is more likely to file additional claims in the future. A history of filing a number of claims might indicate an even greater risk for the insurance company.

Miller went on to explain how the type and number of claims you make could influence rates. “Even if claims were made in a previous home, this history will follow you,” Miller said.

Marital status

Marriage can impact rates for a number of insurance policies, including home and auto. Insurers will typically charge lower rates to married couples because of the assumed lower risk. The chart below shows the general thought-process of insurers when factoring in marital status for rates.

Marital status Amount of claims typically filed Details Impact on premiums
Married Fewer than average Married couples statistically file fewer claims than non-married persons. These couples are viewed as being more stable and “settled” than singles. Likely to see lower rates
Single More than average Single people file more claims. This group is also perceived as being less responsible and more likely to take risks. Likely to see higher rates

Age of home

If you live in an older home or one that would likely need a lot of improvements if rebuilt, you will likely pay a higher home insurance premium.

Miller explained age and location are important factors in determining the cost to rebuild a home. “Insurers will assess the difficulty to replace or repair your home to determine rates,” Miller said. He added home improvements such as roof replacement, upgrades to your electrical, heating or plumbing system and the installation of a security system “can all positively impact your rate as the likelihood of a loss declines.”

Miller noted your insurance agent should be notified of any upgrades to your home.

Deductible

A homeowners insurance deductible sets the amount you will pay out of pocket. Agreeing to a higher deductible will decrease your premium, but it could also cost you more in the event of a claim.

“Many insurers also offer disappearing deductibles, which means they reduce your deductible if you don’t have any claims over a certain time period,” Miller said.

Location

The location of your home influences the amount you pay in premiums. If your zip code is located near an area with a history of perils, such as vandalism, theft or weather-related events, then it could increase the cost of the policy. However, location could have a positive impact too, if you are located near a staffed fire station for example.

Location is also used to determine the replacement costs, since construction costs, including labor and materials, can vary depending on the community.

Surprising factors that impact your home insurance rate

Though the factors above relating to a home’s construction, history and the insured’s financial background are significant, there are many other factors considered in setting rates, which are often overlooked.

  • Distance from water: “The closer a home is to the coast, the more likely it is to experience flooding or hurricane damage, and tends to increase the cost of insurance,” Harper of Kin Insurance said. According to Harper, “Flood zones play a key role in whether or not you need flood insurance. If you have a federally backed mortgage, like an FHA loan and your home is in a high-risk flood zone, you’re required to have flood insurance.”
  • Filing small claims: In the view of many insurance companies filing even a small claim is an indicator you are likely to file more claims in the future, possibly larger ones.
  • Living near a fire station: Wherever you live, the premiums you pay for home insurance are likely to be impacted by the proximity of your home to a fire department. The closer you are to a fire station, the greater the likelihood a fire can be quickly extinguished and severe damage, or complete destruction of your home, averted. The insurance industry generally uses the Fire Suppression Rating Schedule (FSRS) from the Insurance Services Office (ISO) to judge fire prevention. On the 10-point scale, the lower the score, the safer the home is from fire risk. If your home is further than five miles away from the nearest fire department, the rating will automatically default to a 10.
  • Dog breed: Pets and dog breeds may also impact your rates. Harper explained, “Some companies will simply raise your rates to account for the increased ‘bite risk.’” Certain dogs may even be excluded from homeowners coverage entirely. “Even if your dog isn’t a ‘restricted breed’, a bite history could also impact your rate or ability to get coverage,” Harper said.
  • Attractive nuisances: If you have attractive nuisances, or things on your property could be potentially dangerous and appealing, especially to children, you may also have higher homeowners insurance rates. As Harper highlights, attractive nuisances “include swimming pools, trampolines, treehouses, wells, fountains, swing sets, construction projects – anything enticing that could attract trespassers or increase the risk of an invited guest getting injured.”

This is just a snapshot. Countless additional factors may be considered in your homeowners insurance so pinpointing what factor affects insurance premiums the most could be difficult.

For example, Earl Jones of the Earl L. Jones Insurance Agency in Sunnyvale, California, mentioned several circumstances, including living in an area prone to wildfires, having a trampoline and having a swimming pool, that could impact rates. Different activities in your home, such as having your home operate as an Airbnb, could also be a factor.

Home insurance policy types

Insurers further breakdown insurance policies into specific types. Each one of these forms of homeowners insurance has different levels of coverage, including which perils are included, the amount of liability and even the types of homes covered.

Both the type of dwelling and the amount of protection you want are driving factors for which home insurance policy to choose. While it may be tempting to purchase the bare minimum policy because of a limited budget, it will not offer the level of protection you would find in another type of policy.

Type of policy What’s covered
HO-1 policy This type of policy is the bare minimum of coverage for home perils such as fire, theft and vandalism. HO-1 policies only cover specifically named perils and excludes liability coverage.
HO-2 policy An HO-2 policy provides a little more coverage than an HO-1 policy and also includes a small amount of liability protection. It only covers named perils but the coverage extends to detached structures, personal belongings and additional living expenses.
HO-3 policy This is the most common type of homeowners insurance policy and it includes the basic coverages you’ll find in an HO-2 policy, but it will cover the physical structure of your home from anything that is not explicitly excluded.
HO-4 policy Designed for renters rather than homeowners, an HO-4 policy includes coverages like theft, explosions and additional living expenses, but coverage does not cover the structure you live in – it only covers your personal property and belongings.
HO-5 policy This type of policy covers open perils for both your dwelling and personal property. That means that it provides coverage for any peril that is not specifically excluded (such as damage from neglect).
HO-6 policy An HO-6 policy provides coverage for condominiums and has specific distinctions to account for what is covered. These policies, also known as condo insurance, typically cover the interior of your unit, personal property, personal liability, guest medical payments and loss of use.

Additional home insurance coverages

Standard homeowners insurance policies offer protection for the structure of your home, its covered contents and liability. However, you may either find yourself with insufficient limits or with damage that is excluded entirely from your existing policy. Additional policies can vary in price, but may make a huge difference in filling potential gaps in your coverage. Two key types stand out:

  • Flood insurance: Flood insurance is not included in most home insurance policies. It is separately covered by policies placed with the National Flood Insurance Program (NFIP) and some private companies. While flood insurance is generally available to anyone, it is most prevalent in high-risk flood zones. The states with the highest number of flood policies in 2019 were Texas, Louisiana, Florida and California.
  • Umbrella policy: “[Umbrella policies] supplement your personal liability coverage and are a more cost-effective way to increase liability limits,” Harper said. He points out it might make sense to consider an umbrella policy if you have a high net worth, are a landlord, do a lot of community volunteering, regularly host parties or gatherings or have an attractive nuisance.

There may be other options you want to add. You could speak with your insurance company and agent about optional coverages and additional policies to help create a robust insurance package.

Frequently asked questions

What is the best homeowners insurance company

Similarly, how numerous factors influence your home insurance rates, there are several points to consider for determining the best homeowners insurance company. Start with reviewing which carriers offer the coverage options you need, positive customer service ratings, strong financial strength ratings and discounts to find which might be best for your circumstances.

Should I lower my coverage to lower my home insurance rates?

Lowering the amount of coverage within your policy is one of the factors that affect home insurance costs. While your rates could be lower, it could also limit the amount of financial protection a thorough policy provides. A better option is to speak with your licensed insurance agent and find out if there are other ways to trim costs, such as applying a discount you now qualify for.

If I make updates to my home will it lower my premiums?

There are cases where you make updates to your home and the results mean lower Homeowners insurance rates. For example, if you install a new roof then it could lower the premiums, since this is typically a large expense for an insurance company to cover. Be sure to talk to your insurance agent about any updates made and if it could mean a lower rate.

Written by
Sara Coleman
Insurance Contributor
Sara Coleman has three years of experience in writing for insurance domains such as Bankrate, The Simple Dollar, Reviews.com, Coverage.com and numerous other personal finance sites. She writes about insurance products such as auto, homeowners, renters and disability.
Edited by
Insurance Editor