Your home is usually one of your biggest investments—and one of your most valuable assets.
Homeowners insurance is your protection for that investment, and with so many options to choose from for coverage, a lot of homeowners are left wondering how much they should be paying for homeowners insurance.
There’s no simple answer to this question. That’s because there are many factors that go into determining how much an individual homeowner will pay for homeowners insurance.
Let’s explore some of them below.
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How Much Does Homeowners Insurance Cost?
Homeowners insurance costs can vary dramatically from one state to another and even among individual homeowners. States regulate insurance companies, which impacts what insurers charge, how they operate within a state, and which factors an insurance company uses to determine your premium.
Here’s one example: Credit scores are frequently used in determining premium costs for insurance products, including auto and homeowners insurance. Insurers like to use credit scores because they are an established indicator of an individual’s payment history. However, some states either limit or outright ban insurance companies from using credit history when determining rates.
With so much variability, nailing down a single answer can be tricky.
What Are Some Homeowners Insurance Cost Factors?
There are many different cost factors that affect homeowners insurance premiums. Some of these factors have to do with where you live, some have to do with the cost to rebuild in your area, and still others are impacted by decisions you make.
Here are some examples:
Where You Live
This is an essential component in calculating your homeowners insurance premium. If you live in a high-crime area, your rates will be higher. If you live in Tornado Alley (where wind damage is frequent) or on the Gulf Coast (where hurricanes and tropical storms are likely), your rates will be higher. The potential destruction from natural disasters plays a significant role in determining the premium cost for your homeowners insurance policy.
How Much It Would Cost to Rebuild Your Home
Because homeowners insurance is designed to protect you in worst-case scenarios, replacement cost is an important consideration—and a lot goes into this calculation. Recent supply chain and labor issues have caused construction costs to rise substantially, and this situation is worse in some areas of the country. This can impact your homeowners insurance rates.
The Age and Condition of Your Home
As a home ages, it becomes more likely that important components will break down. It can also become harder to find comparable materials for repairs on older homes. Because of these and other factors, an older home is typically more expensive to insure than a new one. Specifically, insurance carriers will take into consideration the age and condition of your roof. Unless the house is over 40 years old, the rest of the structure is generally less of a concern.
The Amount and Type of Coverage
It might seem obvious that the more coverage you select, the more you’ll pay, but it’s worth explaining. A basic homeowners insurance policy covers the physical structure of your house (“dwellings coverage”) and the things that you own (“personal property coverage”).
You want to make sure your home is insured for enough to cover the cost of rebuilding your home and replacing your possessions. For your personal property as well as the dwelling itself, you can choose between “actual cash value” or “replacement cost coverage,” which will have an impact on your premium.
This one is straightforward: The higher your deductible, the cheaper your premium will be. It is important to note that some insurance carriers offer lower deductible levels based on state requirements, and some coverages, such as wind and hail, can have a separate deductible based on your location.
Selection of Additional Riders
For each additional coverage you add to your policy, you can expect to pay more on your premium. Think of the potential risks you face: In some areas, that may mean getting earthquake insurance, flood insurance, or other specialized coverage.
What You Do for Fun
Swimming pools and trampolines might be fun for the whole family, but they have the potential to cause injuries—and, if someone outside of your immediate family is hurt, pools and trampolines carry an increased liability risk. Having a pool or trampoline can increase the cost of your homeowners insurance. Be sure to update your policy if you add a pool or trampoline to your home, as some carriers will deny coverage if these new risks are not disclosed.
The Type of Dog You Have
Millions of Americans own dogs, and while dogs of any size can bite, larger breeds can cause more damage. Some insurance companies even have restrictions on certain dog breeds. Again, this comes down to liability risk factors, which may have an impact on how much you pay for homeowners insurance.
What Is the Difference Between Homeowners Insurance and PMI?
Homeowners insurance protects you financially if your home is damaged or destroyed by a covered event, such as an accidental fire. Private mortgage insurance (PMI), however, protects the lender—not you. Borrowers are often required to purchase PMI as part of their loan agreement if their down payment is less than 20 percent of the home’s purchase price.
So, while PMI and a homeowners policy are both types of insurance, they offer financial protection to different parties. Homeowners insurance covers your losses, while PMI covers a lender’s financial loss if you were ever to default on your mortgage.
How Can I Reduce the Cost of Homeowners Insurance?
A homeowner can reduce the cost of homeowners insurance by taking one or more of the following actions: bundling, increasing your deductible, reducing your risk by installing alarms, or other smart safety features.
- Bundling Your Insurance Policies
Bundling is one of the most popular ways to see if you could save money on your homeowners insurance*. If you have multiple policies with one insurer, such as an auto policy and a home insurance policy, you could often save money on your premiums.
- Increasing Your Deductible
Another way to reduce the cost of your homeowners insurance is by increasing your deductible. The deductible is how much of the repair or replacement cost you will be responsible for in the event of a covered loss.
Because a higher deductible means that you are willing to shoulder a greater portion of the financial responsibility, insurers frequently will respond by lowering your rate. However, it’s important to make sure that you can comfortably afford your deductible in case of an emergency.
- Reducing Your Risk Factors
There is a wide range of home-protection devices on the market that can alert homeowners to issues around their homes before they become expensive to repair. By reducing your risk of a claim, you are protecting your home—and insurers will frequently offer discounts on your premium.
Burglar alarms, sprinkler and fire suppression systems, leak detectors, and other smart-home features can bring you peace of mind and potentially save you money. These discounts can vary from one company to the next, so check with your insurance agent to find out which systems may be eligible for discounts.
There are also other ways you may be able to reduce your premiums. If you have a dog, you might be able to reduce your risk (and your rate) by completing a Canine Good Citizen class with your dog, for example.
What Is the Average Cost of Homeowners Insurance?
As has been explained above, “average cost” is hard to pin down with so many variables. The National Association of Insurance Commissioners’ 2021 Report states that the average cost of homeowners insurance is $1,249 a year. This is an average, so it includes data from states like California, with its high wildfire and earthquake risk, and states along the Gulf Coast, which have a high risk for hurricanes and coastal flooding.
Even within a particular state, homeowners insurance rates can sometimes vary dramatically. To find a great rate for you, either call an agent or go online to compare your options. It’s important to make sure that you’re comparing similar products, with the same types of coverages, liability limits, and discounts that might be available. For example, if you find out that one company is offering a lower homeowners insurance rate, but it doesn’t offer car insurance so you can’t get a “bundling” discount, you’ll need to factor that into your comparison.
Which States Have the Highest Homeowners Insurance Rates?
Insurance Business Magazine from 2021 reports that the states with the highest homeowners insurance rates are:
- Oklahoma: As a Plains State located in what is known as “Tornado Alley,” Oklahoma can see high winds, tornadoes, and hailstorms. Homes in the eastern portion of the state are also vulnerable to flooding.
- Nebraska: Also located in Tornado Alley, Nebraska shares many of the same risks as Oklahoma.
- Kansas: Like its neighbors, Kansas is susceptible to windstorms, blizzards, tornadoes, hail, and flooding.
- Arkansas: The Natural State has a risk factor that might surprise some people; it has one of the nation’s largest fault lines running through it. When the New Madrid Seismic Zone experienced a series of earthquakes between 1811 and 1812, the shaking reportedly rang church bells as far away as Philadelphia. Arkansas also has tornadoes, flooding, and wind damage.
- New Mexico: Rounding out the top five is New Mexico, which has an elevated risk for earthquakes. It’s also prone to flooding.
States with high exposure to natural disasters will typically have higher homeowners insurance rates, but where you live within the state—and the age and cost to rebuild your home—will also be important factors.
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The Bottom Line
With so many variables in play, it makes sense that people wonder how much homeowners insurance should cost. There are ways to make it more affordable—such as bundling your policies or increasing your deductible—but before you change carriers to get a lower rate, make sure that you are making an apples-to-apples comparison.
Your home isn’t just one of your most expensive assets; it’s where you live. Be sure you are protected against financial loss if the worst should ever happen. Guaranteed Rate Insurance can help you compare quotes from top-rated carriers to find the best rate for you. Start comparing quotes online or talk to an Expert Agent today, and see if you could save on your insurance!
*Savings, if any, vary based on a consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply.
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