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10 Factors That Affect Home Insurance Costs  

Many factors affect the cost of home insurance, with where you live and how much it costs to rebuild your home topping the list.

By Mike Faden | American Express Credit Intel Freelance Contributor

6 Min Read | July 31, 2020 in Life

 

At-A-Glance

The average cost of homeowner insurance nationwide was $1,211 in 2017, but costs vary widely.  

Two of the biggest factors affecting the price of homeowner insurance are your home’s location and the cost to rebuild it.

Many other factors play a role, including your credit history, your choice of provider, and whether you bundle multiple types of insurance – say, auto and homeowner.

Experts agree every homeowner needs home insurance – it protects your house and your possessions, and it can protect you from liability in some cases. Even if you’re willing to assume those risks, your mortgage lender will generally require you to have home insurance. 

 

But how much should you pay for the important protection of homeowner insurance? There’s no simple answer, because the cost of home insurance varies widely depending on many different factors. Nationwide, the average annual cost of a home insurance premium was $1,211 for the most common type of policy in 2017, the most recent year for which data was available, according to the National Association of Insurance Commissioners (NAIC).1  But you could pay much less or much more. Here are 10 factors that affect how much homeowner insurance costs:

 

1.     Where you live.

2.     The price of your home and the cost to rebuild it.

3.     The amount of coverage.

4.     Your home’s age and condition.

5.     Home security and safety features.

6.     Your credit history.

7.     Additional types of coverage.

8.     Your deductible.

9.     Bundling other insurance from the same company.

10.   Your choice of insurance provider.

 

1. Where You Live Has a Big Impact on Homeowner Insurance Costs

Where you live is one of the biggest factors that determine how much you’ll pay for home insurance. On average, Louisiana homeowners paid almost three times as much for their premiums in 2017 ($1,967) as homeowners in Oregon ($659), according to the NAIC. Natural disasters are a primary reason for that startling difference: When hurricanes hit coastal states like Louisiana and Florida, insurers sometimes have to pay for billions of dollars in damages, so they raise home insurance premiums. 

 

Local factors within each state also affect homeowner insurance costs, including your city and your zip code. Home prices are generally higher in cities than in rural areas, so home insurance tends to cost more too. Your cost could be lower if your neighborhood is near a permanently staffed fire department, or higher if you live in a high-crime area where insurance claims are more common.2

 

2. Home Price and Rebuilding Costs Are Major Factors

A higher-priced home generally costs more to insure, largely because it’s more expensive to rebuild or repair. Coverage for rebuilding and repair accounts for a large part of the cost of your homeowner insurance policy. The NAIC study noted how the average home insurance premium varied by coverage amount for the most common type of policy:3

  • $870 for $100,000–$125,00 in coverage.
  • $1,467 for $400,000–$499,000.
  • $2,149 for $500,000 and above.

The rebuilding and repair cost depends on local construction costs as well as the size of the home. It also depends on other factors, such as the type of construction, the style of the house, whether it was custom built, and whether you have special features such as fireplaces.4

 

3. Higher Coverage Costs More

As noted in No. 2, the higher the level of coverage you have, the more you’ll pay. But repair and rebuilding aren’t the only costs that go into your coverage amount. A standard homeowners insurance policy includes three other major types of coverage:

  • Personal belongings such as furniture, clothing or equipment.
  • Liability against lawsuits or other costs – such as someone’s medical costs if they are injured in your home.
  • Additional living expenses to cover the cost of living somewhere else during home repairs, if your home is so badly damaged that it’s not habitable.

Policies typically cover each type up to a maximum amount. If you opt to increase any of these amounts, your premium may increase. Look carefully at the limits and think about whether they are realistic. For example, some policies include a $100,000 liability limit, but an insurance industry association says higher liability limits are increasingly recommended.5

 

4. Your Home’s Age and Condition Matter

Your homeowner insurance premium may be higher if you have a vintage home. One reason is that older homes often have features or construction materials that are costly to replace, like original siding or ornate trim. Another reason is that older homes may have outdated plumbing or electrical systems that insurers view as higher risk. The home’s condition is also important, even if it’s newer. Insurers often pay special attention to the roof, because leaks due to a worn-out roof can cause expensive damage inside your home.

 

5. Home Security and Safety Features May Reduce Your Premium

Insurers may reward you with a discount if you install security or safety systems that reduce the risk of home insurance claims. One insurer says you may earn discounts on premiums if you add a security system or fire alarms that automatically alert local authorities, or even if you secure doors and windows with strong locks and deadbolts.6 Of course, you need to weigh the potential benefit of each feature against its cost – and not all insurers offer the same discounts.

 

6. Insurers May Assess Your Credit History

The way you use credit may affect your home insurance premium. In some states, insurers are allowed to use a credit-based “insurance score” as a factor when setting premiums. Your insurance score is different from your credit score, but it’s based on some of the same factors, including your payment history and how much debt you have. You can improve your insurance score using the same methods that you’d use to improve your credit score, such as making sure you pay credit card bills on time.7

 

7. You May Want to Buy Additional Coverage Types

Depending on your situation, you may consider buying additional types of coverage, either as an extension of your homeowner insurance or as a separate policy. Some disasters, like earthquakes and floods, generally aren’t covered by regular home insurance, so if you live in an area vulnerable to those catastrophes and you want coverage you’ll probably need to buy it separately.8 In one Consumer Reports survey, the organization’s members listed hailstorms as the leading cause of damage that resulted in filing claims. You may have to pay extra to cover hail damage.9

 

8. Higher Deductibles May Reduce Your Premium

You may have the option of choosing higher or lower deductibles on your home insurance policy. A deductible is the amount you pay towards a claim. For example, if you have a $500 deductible and your home suffers damage that costs $2,000 to fix, you’d pay $500 and the insurer would pay the rest, assuming it approves the repair bill. A higher deductible reduces the insurer’s risk, so the company may reduce your premium accordingly.

 

9. Bundling Insurance May Save You Money

Many insurers offer a discount if you buy multiple types of insurance from them. One online brokerage estimates that homeowners can save an average of 20% on the cost of their home insurance policy if they also buy auto insurance from the same company.10

 

10. Compare Insurers to Find Deals

Shopping around may get you a better deal. In the Consumer Reports survey, one in eight people said they’d changed insurers in the previous three years – and more than half of them said they switched because they got a better price.

 

The Takeaway

Many factors affect the cost of home insurance. Some may be outside your control, like where you live and the size and age of your house. Others involve decisions, such as whether to buy additional coverage, add security systems, or bundle insurance. Take time to analyze the options before deciding. For many people, a home is one of life’s biggest investments, and it’s important to think carefully about how to protect it.

Megan Doyle

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

The material made available for you on this website, Credit Intel, is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.