For many Americans, buying a home is the single largest purchase they will make in their lifetime. Buying homeowners insurance is a great way to protect your financial investment, while providing you and your family peace of mind. A homeowners insurance policy will pay for covered claims if there is damage to the physical structure of your home and your personal belongings, as well as for covered liability claims, and provide temporary living expenses if your home becomes uninhabitable due to a covered loss.
According to the Insurance Information Institute (Triple-I), there are several aspects to a standard home insurance policy, such as coverages, deductibles, exclusions and the premium. Each plays an important role in your homeowners insurance purchase, and understanding each one can help you make the best choice when comparing policies and insurance companies.
Homeowners insurance premiums explained
Your homeowners insurance premium is the amount of money you pay every year to keep your insurance policy active. Most insurers offer flexible payment options, with the ability to pay your homeowners premiums monthly, quarterly or annually. If you have a mortgage, your homeowners insurance premium will typically be included as part of your monthly mortgage payment, which is then paid annually to your property insurer by your lender.
When you purchase a new home insurance policy, the insurance company will review various rating factors to determine your premium. Some are personal factors, like your age, credit-based insurance score, marital status and claims history. Other factors are related to your home, like the ZIP code, the year it was built, square footage, general condition, and your property’s proximity to a fire station.
Ultimately, some homes and homeowners are riskier to insure than others. For example, it is less risky for the insurance company to cover a newer home or a homeowner with a good insurance score than to insure a home in poor condition, or a homeowner with a poor credit history. The more risk you carry, the higher your premium will likely be.
How much does the average homeowners insurance premium cost?
For $250,000 in dwelling coverage, the average annual cost of home insurance in the U.S. is $1,312, based on 2021 property insurance carrier data from Quadrant Information Services. However, the price of home insurance varies based on a number of factors. You might pay more or less than the national average based on your age, claims history and insurance score, depending on your state.
One of the biggest factors that impacts your premium cost is where you live. The cost of home insurance is different in every state. In general, homeowners who live in states with a high risk of severe weather or communities with a high level of home burglaries and vandalism, pay the most for their insurance.
Here are the most expensive states for home insurance (based on average premium):
Here are the cheapest states for home insurance (based on average premium):
Factors considered in your homeowners insurance premium
Below are common factors that impact homeowners insurance premiums. However, speak with your property insurer or insurance agent about your specific rating factors.
A main factor used to determine your homeowners insurance premium is the amount of coverage you need. Most property insurers have a valuation tool used to determine your home’s estimated rebuild cost if it were considered a total loss due to a covered peril. This coverage will appear as dwelling coverage, otherwise known as Coverage A, on your declarations page.
Many of the remaining coverages are typically a percentage of the dwelling coverage, which varies by carrier. These coverages can often be increased independently if more coverage is needed. For example, if your policy only includes $25,000 for other structures coverage, but you have a $45,000 detached garage that you need to insure, you may be able to increase the other structures coverage in your policy for minimal additional impact to your premium.
Where the home is located is another important factor used to calculate your homeowners insurance premium. Insurance companies gather data about the ZIP code where the home is located, including the risk of crime, weather events and natural disasters. The more likely it is for you to file a claim in that ZIP code, the higher the premium could be.
How close you are to the nearest fire hydrant and fire station matters as well. The closer you are, the more you can save on your homeowners insurance premium. Generally, the lower your protection class, the more favorable your premium and the more property insurers are willing to offer coverage in the area.
Structural elements of your home
Your home’s characteristics are used to determine how much dwelling coverage is needed. There are several factors considered that make up the build of your home, including:
- Construction type
- Square footage
- Condition of the home
- Quality of the construction material used
- Any improvements or enhancements (like upgraded kitchens or bathrooms)
- Number of bathrooms
- Foundation type
Installing safety features like storm-proof windows and doors, wind-rated garage door, home security system, automatic sprinklers and an impact-resistant roof may lower your homeowners insurance premium.
An insurance score is not the same as your credit score, but takes your credit history into consideration and it can affect your homeowners insurance premium in most states. Insurance companies base premiums on risk and actuarial studies have shown that people with a lower insurance-based credit score tend to file more claims with higher payouts, according to the Triple-I.
Though insurance score modeling is proprietary to home insurers generally, paying your bills on time and avoiding collections and bankruptcies will increase your insurance score and lower your homeowners premium.
Unless you live in the following states, expect your credit-based insurance score to be a rating factor for your homeowners insurance premiums:
- Oregon (some information can be used, but it is limited)
How homeowners rates change
Whether you make changes to your insurance policy to change the premium or an adjustment is made by the insurance company, it is common for homeowners insurance premiums to change each renewal period. Whether the premium increases or decreases depends on the reason for the rate change. It is important to note that insurers must file (and receive approval) for broad rate increases with the Department of Insurance in each state where they operate.
Homeowners insurance premium increase
Factors that could cause an increase in your homeowners insurance premium are:
- Your insurer has filed for an average rate increase in your state
- Renovations are made requiring a coverage increase
- Purchasing new items requiring a coverage increase, like fine jewelry
- Your insurance score is lowered
- You filed multiple claims
- Crime rates have increased in your ZIP code
- Natural disasters are becoming more common or causing more damage in your area
- Your coverage limits were increased to keep in line with replacement cost
Homeowners insurance premium decrease
Applying discounts is one of the best ways to decrease your homeowners insurance premium. This includes adding safety or smart home features to your home, like burglar and fire alarms. Making improvements to the home, such as adding a new roof or updating your electrical system, may make you eligible for a discount.
The home and auto bundle is often the largest discount offered by insurers. Another way to lower your homeowners insurance premium is to increase your policy’s deductible. However, a higher deductible means more out-of-pocket expenses if you file a claim.
Lowering your coverage limits can also reduce how much you pay for home insurance but should be made with caution. Reducing your limits could leave you open to financial strain if you need to file a claim. If you got rid of your swimming pool, you may not need as much other structures coverage. Or, you sold an expensive ring, so you no longer need scheduled personal property coverage.
How to pay your homeowners insurance
When it comes to paying your home insurance premium, you have a few options.
One way is to pay the premium through your mortgage lender. With this option, your lender will add the cost of your insurance premium to your monthly mortgage payment and keep it in an escrow account along with funds for your property taxes. With each payment, the lender sets aside a portion of the money that goes directly to your insurance company. Depending on your lender and loan type, this may be required.
The other option is to pay the insurance company directly, which works like any other bill. Depending on the insurer, you may be able to charge your premium to a credit card, mail in a check, or set up an electronic funds transfer (EFT) from a checking or savings account, which is a direct deposit to the insurer. With direct premium payments, you can usually choose to pay annually, bi-annually, quarterly or monthly.
One thing to consider is that many insurance companies will give homeowners a discount on their premium if they pay the annual cost in full, rather than through installments. Additionally, some companies offer discounts if you sign up for automatic payments using a credit card or bank transfer.
Frequently asked questions
What is the average home insurance premium?
The average home insurance premium in the U.S. is $1,312 per year or $109 per month. However, you might pay more or less than the average premium depending on a number of factors. Your ZIP code, insurance-based credit score and claims history can all affect your rate, as well as the size, age and condition of your home.
Are there other home insurance costs besides the premium?
Your premium is the amount of money you pay to keep your policy in force. But if you have to file a claim for damage to your home or personal property, you are also required to pay a deductible. A deductible is the amount of money you pay out of pocket to help cover repairs due to a claim. You can choose a deductible when you buy home insurance, but it usually ranges from $500-$2,500, or even higher. It could also be a percentage of the dwelling amount. In states along the Atlantic and Gulf Coasts, as well as Washington, D.C., your home policy will contain a separate deductible for windstorm coverage for named tropical cyclones. The hurricane deductible typically runs 1-5% of your home’s insured value.
How do I get a homeowners insurance quote?
The Triple-I recommends you get a minimum of three quotes to compare prices and coverage. When shopping for home insurance, it is easy to get quotes from different property insurers. Many insurers have an online quote tool that will help calculate your sample rate based on the information you submit. Numerous consumer comparison sites also allow you to obtain quotes from multiple insurers. A local agent can also help you obtain quotes and other information about home insurers.