12 Factors That Affect Homeowners Insurance Premiums

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  • 12 Factors That Affect Homeowners Insurance Premiums

A multitude of factors makes up a single price for each homeowners insurance policy. Even though your neighbor’s house may look nearly identical to yours, you may have two entirely different insurance premiums. Even if each house may have been built in the same year, with the same structure, and an identical two-car garage, the ins and outs of each house may be entirely different.

You may have a pool, hot tub or trampoline. Your neighbors don’t. You may be saving up to remodel your kitchen to your dream standards. Your neighbors may have already completed the task. When browsing for a home insurance policy, keep in mind the following 11 factors that affect homeowners insurance premiums.

1. How Much Homeowners Insurance Coverage You Need

Like the types of coverage you enroll in, the amount of coverage you need or sign up for can have a profound impact on your homeowners insurance rates. Simply put, the more expensive something is, the more money it will cost to insure. By this same token, you have a little bit of control over the amount of money you pay for insurance by modifying your coverage amounts and deductible associated with filing a claim.

Homeowners insurance comes with six coverage types: dwelling, other structures, personal property, loss of use, liability and medical payments to others. Some elements of your coverage amounts are mandated by your mortgage lender, but electing for additional coverage often drives the rate of your insurance premiums up.

Dwelling: This covers the structure of your home. So a house worth $250,000 needs to have $250,000 in dwelling coverage and a $150,000 house needs to have at least $150,000 in dwelling coverage. Just like a $250,000 house costs more to buy, it will also cost more to insure because your insurance will have to pay more money if your home is damaged by a covered peril.

Other Structures: This helps protect other structures on your property, like sheds and fences, if they’re damaged by a covered peril. The standard other structures policy is typically 10% of your home’s dwelling coverage, and may be non-negotiable, so homeowners with more dwelling coverage will also have to pay more for other structures coverage.

Personal Property: Homeowners can choose as much or as little personal property coverage as they want. It pays for things like furniture and electronics if they’re damaged by a covered peril. But it’s important to keep a contents list to see how much your items are worth. The more value in belongings you need to insure, the higher your homeowners insurance premiums will be.

Loss of Use: The coverage helps to pay for additional living expenses if your home is damaged or destroyed by a covered peril and you must temporarily move out while it’s being repaired or reconstructed. Loss of use coverage comes standard at 20% of your dwelling coverage, but you may be able to reduce or increase your coverage, which can either reduce or increase your premiums.

Liability: Liability coverage helps to pay for medical bills, property damage and legal expenses if an accident is involved and you’re found liable. If someone is injured on your property or you cause damage to someone else’s property, you may be financially responsible to pay for the damages, which your homeowners insurance can help you with.

Coverage is standard at $100,000 per claim, but you can likely increase it to $500,000 through your insurer. If you need $1 million or more in coverage, you’ll have to purchase an additional umbrella insurance policy.

Medical Payments to Others: Medical payments coverage helps to pay for minor injuries that occur on your property. Coverage limits are typically between $1,000 and $5,000 per claim, but increasing or decreasing coverage won’t have a significant impact on your premiums.

As a general rule of thumb, the more comprehensive your policy is (that is, the more completely it covers you against any kind of loss), the more expensive it will become.

2. Age, Construction & Replacement Cost of Home

Your home’s age, construction and replacement cost set the foundation for your insurance premium. When shopping for a home, these factors should be taken into account, as these are possibly the most important factors on a policy after purchase.

Older homes are more outdated and susceptible to damage from natural disasters and basic wear and tear. For these reasons, they’re perceived as riskier by insurance companies. As a home ages, so do the materials inside. Things like aged electrical wiring and plumbing units are taken into consideration for each policy. The older they are, the higher your premium. Also there are different considerations for homes on septic tanks.

As architecture evolves, novelties and systems are replaced with updated, cost-efficient methods of construction. Hardwood floors, stained-glass windows and plaster walls are more expensive to replace than their modern equivalents. These are evaluated to account for the repair or replacement cost of a home due to a qualifying peril. The more it costs to replace a home, the higher insurance premiums become.

Insurance rates will likely be higher for wood-frame homes as well. Compared to its brick and concrete counterparts, wood is deemed riskier due to its increased flammability and harder time withstanding everyday elements and natural disasters.

Insurance companies also take a long, hard look at each home’s roof condition before binding a policy. Repair and replacement costs differ for asphalt shingles, tile, wood shakes, slate and metal, so the amount of coverage you need will differ as well. In addition, the longer a roof has been on a house, the more wear and tear it has taken throughout the years, which means it’s more susceptible to damage and that your premium will likely be higher.

The older your roof gets, the more of a liability it becomes. When it gets to a certain age, your insurance provider may preemptively increase your rates to account for any potential damage to it in the future. On the other hand, if you decide to repair or replace your roof, let your homeowners insurance company know. You may end up saving on your premium costs, depending on the materials used for your new roof.

3. Location

People living in disaster-prone areas susceptible to hurricanes, tropical storms, tornadoes, earthquakes or other natural disasters are going to face higher premiums and stricter building codes due to increased risk. You can help minimize risk by building homes that are designed to withstand those disasters, such as concrete block structures instead of wood-frame homes in high-wind areas.

Living by any body of water leaves you more vulnerable to floods. Even though flood damage isn’t covered by homeowners insurance, companies always take potential flooding into consideration. An ocean, river, lake or small pond can cause flood damage, so be cognizant of these watery wonderlands when buying a home, and invest in flood insurance to protect your house.

If you live in a part of the country plagued by wildfires, you may find comprehensive coverage on your home is more expensive than in areas where there are fewer concerns. Like the weather, if the crime rates in your neighborhood change for the worse, expect your insurance rates to change, too.

4. Deductible

A home insurance deductible is the amount of money you must pay on a claim before your insurance company begins paying for the remaining damage. By increasing your deductible, you can lower your homeowners insurance premium. By lowering your deductible, you increase your premium. However, it’s wise to account for potential damage or loss to your home or belongings when considering the amount of your deductible.

If you suffer $10,000 in damage to your home due to a covered peril and your deductible is $2,500, you must pay $2,500 before your insurance company picks up the remaining $7,500. On the other hand, if your deductible is only $1,000, you’d save yourself $1,500.

If you live in an area that’s prone to hurricanes, tornadoes or other wind-related storms, your policy may have a separate windstorm deductible. This deductible is based on a percentage of your home’s dwelling coverage. So a homeowner with $250,000 in dwelling coverage and a 5% windstorm deductible will have to pay $5,000 toward a claim before their insurance steps in.

5. Remodeling

Updating your kitchen, bathroom, living room or even your backyard can increase the value of your home. That’s a good thing because it means your hard work is paying dividends. Your home’s increased value must be reflected in your homeowners insurance, too.

In the event of damage or a loss, it will cost more to repair or rebuild your home, which causes your insurance premium to rise. If you do any major overhaul to your home’s condition, it could cost you more in your homeowners coverage over time.

It’s Time to Switch Your Homeowners Insurance

We partner with the nation’s top homeowners insurance companies so you can get a custom policy at an affordable price.

6. Credit & Claims History

One thing credit history provides an insurance company with is a person’s payment record. It weighs payment history, outstanding debt and credit history length, which helps predict a person’s ability to pay their home insurance on time.

Like it or not, if you have a history of filing claims with your homeowners insurance policy, you could find the coverage eventually becomes more expensive. Claims history allows an insurance company to see an individual’s past claims.

If a person has filed a claim at a previous residence, it sticks with them and could affect the price of their new premium. To view your claims history, you can get one copy of your Comprehensive Loss Underwriting Exchange (C.L.U.E.) report per year through LexisNexis’ personal reports.

7. Home Security

Not all changes in your homeowners insurance rates have to be bad. If you decide to install a new home security system, let your insurance provider know as quickly as possible. Not only will the alarm system give you added peace of mind, but it could save you major cash on your insurance policy.

Home security systems help deter would-be thieves from breaking into your house and stealing your stuff. With an extra layer of protection, it’s less likely your belongings will need to be replaced due to a break-in. Replacing old locks, reinforcing deadbolts and installing monitored security systems can increase your protection and lower your home insurance premium.

8. Attractive Nuisances

Considered a slice of backyard paradise, pools, hot tubs and trampolines carry added liability risk. All three drive up the cost of homeowners insurance premiums and the price associated with claims. Injuries that occur in a pool or hot tub may lead to a lawsuit and exponential medical bills.

It’s recommended that homeowners with either water feature increase their liability amount up to at least $500,000, which should only increase your premium by about $75 per year. The Insurance Information Institute also recommends homeowners consider purchasing an umbrella policy, which provides extra liability coverage.

Your homeowners insurance rate can be negatively impacted by the addition of an expensive or potentially dangerous recreational furniture. As a precaution, consider installing a fence or net around your pool or hot tub to help avoid any accidental injuries.

9. Animals

Certain types of pets will harm on your premium prices. Depending on the breed of animal you bring home, or their history if they’ve ever been involved in a bite or attack, you may find your home insurance prices on the rise. One in three homeowners liability claims are linked to dog bites, so don’t be surprised if your rates go up if you ever have to deal with one.

Some insurance companies will refuse to insure people based on their dog’s breed. Others will simply increase premiums. While that may not seem fair, consider that insurance companies paid out $686.3 million in dog bite claims in 2017. They must recoup that money somehow, and raising premiums for certain breeds of dogs is one way to help offset that cost. Check out which dog breeds are considered more dangerous by many home insurance companies.

10. Wood-Burning Stoves

A wood-burning stove is more likely to start a fire than a gas or electric stove. Therefore, insurance companies take on the added risk by increasing your premium. However, providing proof that you’ve installed a smoke detector and added a fire extinguisher near the stove can help cut those costs. You can also provide your agent proof that the wood-burning stove was installed by a licensed contractor.

11. Proximity to Fire Station

There’s a financial payoff for instantaneous blaring sirens that ring through your house. If you live near a fire department, you’ll likely pay less for homeowners insurance. In the event of a fire, firefighters can respond quicker and prevent more damage from occurring. Fire hydrants are treated similarly.

12. Running a Home-Based Business

Being your own boss is the dream, but it may come with a few more added stresses than you were expecting. If you start to run a business from your home, your standard homeowners coverage may not be enough. Depending on the kind of equipment you’re using or the inventory you’re keeping in the house, your insurance provider may increase your rates as a way of accommodating your new business needs.

How You Impact Your Homeowners Insurance Rates

Even though you don’t have complete control over the cost of your home insurance premium, your actions play a major role in whether or not your home insurance rates change. Sometimes you can avoid having your insurance premium rates change on you, and sometimes you can’t.

If you think you’re paying too much for homeowners insurance, you should be proactively shopping your insurance around. You could be overpaying every month on coverage that’s significantly less expensive through a different provider.

It's Time to Switch Your Homeowners Insurance

We partner with the nation's top homeowners insurance companies so you can get a custom policy at an affordable price.

The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.

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