Factors that impact your cost of homeowners insurance

Homeowners in the U.S. pay an average of $1,687 for $250,000 in dwelling coverage. Homeowners insurance is highly personalized, so your cost of coverage will differ from this figure. Insurance companies consider a number of factors when setting rates. Understanding these factors will help you understand your own home insurance premium and potentially help you save money on your coverage.

Factors that impact your home insurance rate

There are several individual and location-specific rating factors that insurers may use to determine your risk profile as a homeowner. A risk profile simply conveys how likely you are to experience a covered peril and file a claim. If an insurer determines you live in an area where the chance of a claim is higher, then it will likely increase your home insurance rates. The following factors may impact your homeowners insurance premium:

Location

Your state and even your ZIP code may influence the amount you pay in home insurance premiums. If your house is located in an area with a history of losses, such as vandalism, theft or weather-related events, you may see a higher premium. However, location could have a positive impact, too. If you are located near a staffed fire station, for example, your home insurance premium could be slightly lower. Location also impacts the replacement cost of your home since construction costs, including labor and materials, may vary depending on region.

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  How you could save

  If you’re looking to buy a property, researching your potential home’s location, as well as risk factors within specific cities or neighborhoods, may help you find a home with lower risk, ultimately lowering the cost of your home insurance premium. This research may also help you identify homes with a higher risk of flood or wildfire loss in the near future. Since flooding is a typical homeowners insurance exclusion and wildfires can be excluded in areas where the natural hazard is prevalent, homeowners may need to purchase separate coverage for protection from both of these perils. Using free online resources such as Risk Factor or Climate Check during the homebuying process may help you take steps to mitigate risks and potentially save you money in the long run, especially on your insurance.

Dwelling coverage

Dwelling coverage is the portion of your homeowners insurance policy designed to cover your home’s structure. Insurance companies have valuation tools that help calculate dwelling costs. An insurance agent – or online quoting tool – will ask you questions about your home to determine how much it might cost to rebuild your house. Be prepared to answer questions about the age of your home and major systems (HVAC, plumbing, electrical), the roof age and condition, the type of building materials used, the square footage and even the unique features of your home, such as dormers or architectural characteristics. These home valuation calculators are proprietary and each company has its own algorithms, so the rebuilding cost of your home will vary between providers.

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  How you could save

  Your dwelling coverage calculation is likely not something you have much control over as long as you are providing as many accurate details about your home as possible. However, if you are renovating or upgrading your home, it may be a good idea to keep in mind how these renovations may affect your insurance costs. For example, upgrading your home’s electrical system may offer you a cheaper premium or make you eligible to shop with more property insurance companies, whereas finishing your basement is likely to increase your insurance costs because it increases the replacement cost value of your home. In either case, make sure to keep your insurance company up to date on any renovations you make on your house to help avoid headaches if you need to file a claim in the future. If you are considering making updates to your home, you can also talk to your insurance agent to find out how these upgrades could impact your premium.

Credit history

In states where it is allowed, insurers can use a homeowner’s credit-based insurance score as a rating factor assessing the level of risk they are taking on. A higher credit-based insurance score is associated with lower risk by insurers. Statistically, homeowners with poor credit histories are more likely to file claims under their policy than homeowners who have good or excellent credit.

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  How you could save

  If you have poor credit, working on improving your credit standing could help reduce your premium in states where a credit-based insurance score is a rating factor. If you already have good credit, keeping your rating high may help you avoid increased insurance premiums due to your credit.

Claims history

Insurance companies often take previous claims filed within a certain time frame into consideration when calculating your rate. When a homeowner files a claim, their homeowners insurance company generally assumes they are more likely to file future claims. Having a history of filing insurance claims, even small ones, might indicate an even greater future claims risk for the insurance company.

Insurers may assess your personal claims history at current and prior properties. What that means is that even if you’re insuring a new home, your prior claims history from other homes will be visible to insurance companies for five to seven years on your Comprehensive Loss Underwriting Exchange (CLUE) report and will likely affect your premium on your new house. The CLUE database also includes claims filed that may have been denied by your insurer.

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  How you could save

  Your homeowners policy offers financial protection in case of a covered peril, but that doesn’t mean you must file a claim for every loss. The more claims a homeowner has, the higher the insurance cost can potentially be. Being selective with the claims you file may help keep the cost of your insurance on the lower end. Claims close to the deductible amount or that will not cause a financial strain for you to pay directly do not need to go through your insurance company. However, if the repairs cost more than you can comfortably handle, filing a claim to fix the issue and mitigate future loss may be more beneficial than waiting to save up the funds. Before filing a small claim, you may want to discuss the issue with your insurance agent.

Marital status

Whether you’re a first-time home buyer or have owned a home for many years, your marital status may impact your homeowners insurance rates. Insurers typically charge lower rates to married couples because statistical data shows a lower probability of filing claims compared to unmarried homeowners.

Age of home

If you live in an older home, you will likely pay a higher home insurance premium. The older the house, the more likely it is that aging materials could lead to damage to certain key aspects of your home, such as electrical, plumbing or the roof. Older homes may need to be brought up to code as part of the rebuilding process, so you may want to consider adding ordinance or law coverage as part of your homeowners insurance policy. This coverage extends to getting the home up to date with current laws or ordinances that were created after the home was built or last updated. If you make upgrades to the heating, electrical or plumbing systems, or any other relevant updates, notify your insurance agent in case your policy should reflect the changes.

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  How you could save

  If your home is older, you might be able to take certain measures to modernize it and save money. For example, homes built before 1950 typically have knob and tube wiring, which may be more susceptible to electrical fires, and could increase the risk of a claim. Updating the wiring could reduce those risks and lower the chance of a fire, decreasing your premiums or helping you find a more competitive rate. In addition, some insurance companies provide a potential discount if you make renovations that improve the safety of your home.

Deductible

A homeowners insurance deductible sets the amount you will pay out of pocket for a covered claim. Agreeing to a higher deductible may decrease your premium, but it could also cost you more out of pocket. Some insurers offer diminishing deductibles on your home policy. For example, American Family may give you up to a $100 credit toward your deductible for every year you go without filing a homeowners claim. This may lower your out-of-pocket cost if you do have to file a claim down the road.

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  How you could save

  Increasing your deductible could reduce your monthly premium, but this strategy should be approached with caution. Your budget and financial constraints should be assessed to determine whether you can comfortably pay your deductible on short notice. Also consider that, if you have a higher deductible, you may not want to claim damages when repairs are near or below the cost of your deductible, meaning you could have more out of pocket expenses if something happens than you would with a lower deductible. Additionally, not all coverage types within a home insurance policy have a deductible. Dwelling coverage and personal property coverage have deductibles, but liability coverage, medical payments coverage and additional living expenses coverage don’t. Talk to your insurance agent to get a better understanding of your deductibles.

Surprising factors that impact your home insurance rate

Though the factors above relating to a home’s construction and replacement cost, claims history and the insured’s credit-based insurance score may be significant, there are other factors considered in setting rates that may surprise you.

• Type of home insurance policy: There are several different types of home insurance available, which differ in terms of benefits, perils covered, cost and kinds of homes that qualify for coverage. Talking with a licensed insurance agent may be useful to help you understand the different types of home insurance policy types and which may be right for you.
• Distance from water: “Flood zones play a key role in whether or not you need flood insurance,” said Sean Harper of Kin 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.”
• Distance from 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 and fire hydrant. The closer you are to a fire station and hydrant, 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 determine your home’s fire risk.
• Dog breed: Having pets, especially certain dog breeds and exotic animals, may also impact your rates or even your eligibility with some companies. Harper explained, “Some companies will simply raise your rates to account for the increased ‘bite risk.’ Even if your dog isn’t a ‘restricted breed’, a bite history could also impact your rate or ability to get coverage,” said Harper. However, if you are disabled and have a service animal or emotional support animal with specialty training, discuss this with your provider to see if a lower cost or discount will apply.
• Attractive nuisances: If you have attractive nuisances, or items on your property that could be potentially dangerous and appealing, especially to children, such as pools or playground items like a trampoline, you will likely see higher homeowners insurance rates or eligibility restrictions. Many home insurers will not insure your property if you have a trampoline or diving board for your swimming pool.

This is just a snapshot of some of the more common factors that affect your home insurance rates. There are many factors that may affect homeowners insurance premiums, including ones that might not be mentioned.

How do endorsements affect your home insurance premium?

Adding endorsements to your policy typically raises your insurance premium because you’re getting more robust coverage.

The cost to add endorsements varies by endorsement type and insurance provider. In many cases, the cost of an endorsement will depend on your personal rating factors. For instance, if you add a scheduled personal property endorsement to cover valuables like jewelry, the cost to add the endorsement will be based on the value of the items you’re insuring.

Although adding endorsements may raise your premium, the enhanced coverage might save you significant out-of-pocket costs if you experience a covered peril.

Here are some common endorsements or additional policies that may be beneficial to homeowners:

• Flood insurance: Flood insurance is typically excluded from standard home insurance policies. Although some providers offer flood insurance as an endorsement, flood insurance usually comes in the form of a separate policy purchased from the National Flood Insurance Program (NFIP) or a private insurer. Even if you don’t live in a high-risk area for floods, you may still consider flood insurance. According to the Insurance Information Institute (Triple-I), 90 percent of all natural disasters in the U.S. involve flooding, and flood damage strikes frequently in low or moderate risk areas. Flood insurance is typically a requirement if you have a mortgage and your house is located in a flood plain.
• Umbrella policy: These policies are intended to supplement your personal liability coverage. Liability coverage helps pay for legal expenses and medical costs if someone is injured on your property or you are liable for damage to someone else’s property. If you decide that your liability coverage does not provide enough financial protection, an umbrella policy could help increase your coverage. An umbrella policy may make sense if you have a high net worth, have an attractive nuisance on your property, regularly host parties at your home or simply want a greater level of liability protection for your home and vehicles at a reasonable cost.
• Sewer backup policy: Sewer backup insurance is not automatically covered by a homeowners insurance policy. Having this added as an endorsement to your insurance policy will help protect you financially if you experience a sewer or water backup that damages your home or belongings.

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

Frequently asked questions

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    What is the average cost of homeowners insurance?

    The average cost of home insurance in the U.S. is $1,428 per year for a policy with $250,000 in dwelling coverage. However, home insurance premiums are unique to each individual. Homeowners insurance factors like your location, credit-based insurance score and claim history may all impact your rate. To find the most affordable policy for your situation, most insurance professionals recommend comparing quotes from several different home insurance providers.

    Learn more: How to calculate the cost of your homeowners insurance

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    What is the best homeowners insurance company?

    The best homeowners insurance company will likely not be the same for everyone. Most insurance professionals recommend starting by reviewing which carriers offer the coverage options you need and have positive customer service ratings, strong financial strength ratings and discount opportunities that make sense for you. From there, you can get quotes from top companies and compare to find which company might be best for your circumstances.
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    Should I lower my coverage to lower my home insurance rates?

    While you may be able to lower your coverage amount in order to lower your premium, your lender will typically have minimum coverage requirements that must be included in your policy. Additionally, you may want to consider that while having higher coverage limits may cost more, it also offers more financial protection in the case of a covered event. If you’re trying to decide whether lowering your coverage is the best option, it may benefit you to speak with your insurance company or agent to discuss your concerns and review your policy.
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    If I make updates to my home will it lower my premiums?

    Making updates to your home may lower your homeowners insurance premiums, but it typically depends on the updates, the insurance company you insure your home with and your policy specifics. For example, putting a new roof on your home could lower your premium, but remodeling your home could also increase your premiums. If your heating, electrical or plumbing systems are older, you may get access to a lower premium by upgrading them to new systems. To find out what updates can potentially lower your home insurance premiums, it may be helpful to contact your insurance company or speak with a captive or an independent insurance agent.
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    What is hazard insurance for a home?

    Your mortgage company may request that you have dwelling coverage at a specific limit so that its financial interest is protected in the event of a coverage claim. The other parts of your home insurance policy, such as personal property and personal liability coverage, protects your personal financial interest as the homeowner, but these types of losses do not concern the lender.
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    Why is my homeowners insurance so high?

    Several factors can make insurance premiums higher than what a homeowner would prefer. Some factors you have some control over, such as choice in deductible limit, additional coverages and material enhancements. Others, such as square footage, age of the home and location, are much more complicated to change. If you are unhappy with the cost of your home insurance premium, contact your agent to review discount options and consider shopping other insurance providers for a better rate.