Your home is your most expensive asset and protection can be expensive. There is no simple answer to the question of how much homeowner insurance costs.
The short answer is, it depends.
“There are far more valuation factors than ever before in our industry as computer systems become more sophisticated,” said Craig Peterson, agency owner of American Family Insurance in Overland Park, Kansas.
He said the price depends on the location, condition and value of the home, the type and amount of coverage, the deductible, the homeowner’s credit, damage history and much more.
Types of coverage and how much to buy
Before we get too far, there are a few homeowner coverage fundamentals that need to be understood that affect the cost of the policy.
There are three basic types of coverage that will determine how much you will get after a covered disaster.
- Current monetary value: Treats structure and content based on current value rather than what you paid for.
- Replacement costs: Covers the structure and content based on the cost they incur now up to the value of the policy.
- Guaranteed or extended replacement cost / value: Covers the structure and content based on the current cost of restoring or replacing to a certain percentage above the policy limit.
This post contains more information on What home insurance actually covers (and where you are alone).
The cost of the policy also depends on how much you have insured for the home, what liability insurance you have, and other factors.
Many people are underinsured and that can create problems, especially for people who only have the minimum coverage necessary to satisfy a mortgage company.
“A lot of people think I’m covered. My mortgage lender says I’m covered. I don’t have to do anything else. I don’t want to pay more for insurance, but you may not be fully protected,” said Mark Friedlander, director of corporate communications at Insurance information institute in New York. “If you need to completely replace the property, the value of rebuilding this home today may not be enough.”
What Determines Homeowner Insurance Costs?
Location is a key to figuring out how much homeowner insurance costs. According to the National Association of Insurance CommissionersNationwide premiums increased 3.3% between 2017 and 2018. This is the latest available data.
The report, released in January 2021, also said that premiums tend to be higher in areas with higher population densities, as construction costs and property values are often more expensive there. The same applies to areas that are popular with retirees and vacationers.
If your area is prone to disasters such as hurricanes, forest fires, tornadoes, or earthquakes, prepare to pay more.
Peterson said government regulations also make a big difference in how much insurance costs are incurred.
If this is your first time looking into buying a policy, the agent likely needs the following:
- Address of the apartment.
- Previous inspection reports.
- Previous insurance information.
- Lender Requirements.
- Information about who lives in the home, including pets.
While the amount and type of coverage are the biggest determinants of price, there are many other factors.
The condition of the house is important. Has it been taken care of? How old is it? What building materials were used? What is the condition of the roof?
Insurance companies look at the likelihood that the homeowner will make a claim commensurate with the risk the insurer is trying to take to insure you.
Companies often take into account:
- Homeowner’s previous claims.
- Earlier claims related to the property. If multiple claims have been made in recent years, prices will likely go up or the property will be ineligible.
- In some states, the homeowner’s creditworthiness affects interest rates.
The location of the house in the city is also important. How close is the next hydrant? How about being close to a fire brigade or police station?
The neighborhood and damage history it contains, as well as the crime rate in the region, can also make a difference in the rate.
Adding endorsements to the policy to cover certain conditions can also affect interest rates.
Even if you’re trying to cut premium costs, make sure you have adequate liability insurance in case something happens and someone sues you or you have to pay to replace something more expensive. If you do not have sufficient coverage, the courts can administer your assets. So adding a liability policy might be a good idea, Peterson said.
“One of the biggest liability claims is dog bites,” he said. “Homeowner insurance and liability insurance would extend to children and pets.”
Conclusion: the more cover you have and the more comprehensive it is, the more premiums you pay.
You can save money by shopping.
“We always recommend getting multiple quotes whenever you are shopping for any type of insurance,” Friedlander recommended. “You want to compare apples to apples and make sure you’re looking at the same type of coverage.”
How to lower homeowner insurance rates
If the premium for your homeowner insurance is too high for your budget, there are a few steps you can take to bring the rates down.
But remember, there is no such thing as a giveaway. While these things can lower your premiums, they will likely cost you money in other ways as well.
Increasing your deductible or the amount you pay out of pocket before your coverage begins is one of the easiest ways to lower your premiums. According to Friedlander, increasing a deductible from $ 500 to $ 1,000 can save you up to 25% on your premium.
“We always tell consumers that if you want to increase your deductibles, make sure you have the finances to support it.” You have to understand that if you have claims below that level you will have to pay that money out of pocket, ”he said.
Increasing the deductible also means you’ll have to pay for some repairs like mending a broken window or leaking pipe as it will likely cost less than your deductible.
Some policies also have different deductibles for different risks. For example, hurricane deductibles for a Florida policy are often a percentage of the total amount insured, while the deductible for something like a fire is often a fixed amount.
You can also change the amount of your coverage or the type of coverage. However, keep in mind what these changes will cost you when you make a claim.
Peterson said some additions or repairs to your home could lower the premiums as well. These additions and repairs can include:
- Use of a security system that is monitored by a central station or police station.
- Adding smart home features like video doorbells and Wi-Fi thermostats.
- Install smoke alarm.
- Adding a sprinkler system for the house fire.
- Replace roof.
- Upgrade plumbing.
When renovating, plan ahead and use safer materials. For example, cement and steel frames can cost more than wooden frames, but cement and steel can be cheaper to insure because of their lack of flammability.
Friedländer said loyalty can also be important. If you’ve been with the same insurance company for many years, you might get a discount. You can also discount your premiums by bundling your coverage and having your auto insurance and home insurance with the same company.
Another way to save is to familiarize yourself with filing claims. While we’re insured to protect ourselves financially from disasters, filing a claim just a few dollars more than your deductible could result in a rate increase that could cost you more premiums over time or result in a non-renewal.
“Your homeowner insurance is not a maintenance plan. This applies to major incidents that are unexpected and that you cannot afford or that you do not want to pay out of pocket, ”warned Peterson.
Also, don’t submit too many claims in a short period of time.
“Claims to be free. If you have a clean record and haven’t filed a lawsuit in X years, they’ll consider you a low maintenance customer. That way, you can potentially save too, ”Friedlander said.
Check your credit or union, employer, association membership, etc. for discounts. Your age or marital status may also entitle you to a discount.
Paying back your mortgage can also lower interest rates, as insurance companies sometimes feel that if you own all of your property, you better take care of your property.
Peterson also recommended that you review your existing guidelines every few years.
“It’s a good idea to at least do a check to make sure you still have enough coverage for the house, or maybe too much,” he said, adding that insurance companies automatically set coverage based on an index rather than the actual one Adapt life.
“Sometimes we find that if someone has not looked into their policies in 10 years, sometimes they find that their coverage is too high and they are paying for something they don’t really need,” he said.
Consider more than the price
While getting the lowest possible premium sounds like a great idea, experts think it’s important to consider more than just the price.
“When you buy insurance, be sure to look for financially strong A-rated providers,” Friedlander said. “You want to make sure they are financially sound and you know that you are protected against loss and that they have the assets to pay claims. You want to make sure that you are protected by an insurer that has the financial capacity to handle thousands of claims and who is able to cover all policyholders for major losses. “
He also suggested looking for a company that has an instant response to claims. You don’t want to have to pay a lot out of your pocket for repairs and living expenses while you wait for your insurance claim to be processed. Find out who is handling claims and whether they are licensed adjusters or a third-party call center.
Other things to consider:
- Licensing in your state: Some states have stricter regulations than others. You want a provider that is legitimate and creditworthy.
- Complaints: Visit your state’s insurance department and look for complaints against the companies you are investigating.
- Policyholder satisfaction: Ask the company how many of its policyholders renew each year.
After a disaster, the time is wrong to find out you picked the wrong insurance company.
“Financial security is more important than price. You obviously want to be competitive and not overpay, but you definitely want to make sure that the insurer you choose is financially strong and protects you when you need them to be there, ”Friedlander said.
Tiffani Sherman is a Florida-based freelance reporter with more than 25 years of experience writing on finance, health, travel, and other topics.
This article originally appeared on www.thepennyhoarder.com