What Factors Affect the Cost of Home Insurance?

A homeowners insurance policy protects your home, family, and personal property from many different threats, ranging from liability to fire damage and beyond. But while you know you need coverage, you might not understand the factors that determine the premium rate you pay for it. There are actually many different factors that can affect homeowners insurance rates, including your location.

A local independent insurance agent can help you find affordable homeowners insurance in your area. They'll help you find a policy that includes all the coverage you need at a great rate. Until then, here's a breakdown of the main factors that can affect home insurance policy rates.

Home Location and Geographic Risks

Your specific location and the associated risks in that area can significantly impact your home insurance rates. For example, areas prone to natural disasters, such as hurricanes, floods, wildfires, and tornadoes, carry a higher risk for insurance companies. As such, homeowners in these areas tend to have higher insurance premiums.

Neighborhood and city crime rates can also influence home insurance premiums, as these areas are at a higher risk of theft, vandalism, and break-ins. Higher crime-risk areas tend to have higher home insurance premiums. 

However, your home's location can also influence your premiums in a good way. If you live in close proximity to a fire hydrant, you might have lower home insurance rates due to a quicker emergency response if there's a fire. Further, if your home is located in an area with low crime rates and risk of natural disasters, you're also likely to have much lower home insurance premiums. 

Home Size and Construction Cost 

The size of your home and the materials it's constructed of can also impact your home insurance premium rates. Larger homes tend to be more expensive to repair or rebuild after a disaster like a fire, and as such, tend to cost more to insure. 

The materials your home is constructed of can also influence your policy's rates because of how much it would cost to reconstruct your home. The cost of materials and labor inflation are major components in construction costs. These affect home insurance premiums because homeowners insurance companies must factor in how much they might have to pay to rebuild your home after a major disaster.

Age and Condition of the Home

The age of your home can greatly impact the cost of your insurance. Older homes often have outdated systems, such as electrical, plumbing, and roofing. These outdated elements of the home can increase the risk for both the inhabitants and the insurance company. 

Older homes that need upgrades to these systems can also lead to higher insurance premiums. In addition, sometimes older buildings must be brought up to local codes and ordinances to be deemed safe. Consequently, premium rates for older homes tend to be higher than for newer construction residences.

Claims History

If you've filed homeowners insurance claims in the past, you can expect to have higher premium rates going forward. Especially if you've filed frequent home insurance claims or have filed any severe claims, such as for fire or weather damage, your policy's rates are likely to skyrocket.

Further, claims filed by the home's previous owners can also impact your policy's premiums. This indicates a riskier property to the insurance company that may be more likely to have future claims filed. As a result, even a past homeowner's claims can affect your current policy's rates.

Coverage Amount and Policy Type

The type and amount of home insurance coverage you need also influence your premium rate. Home insurance policies with higher coverage limits and that offer replacement cost value (RCV) vs. actual cash value (ACV) tend to cost more. While ACV coverage policies only pay to replace an item after factoring in depreciation, RCV policies pay out the full cost to replace it, without factoring in depreciation.

If your home insurance policy includes additional coverage or riders, you'll also likely pay more for your policy overall. Additional policies, such as flood insurance and earthquake insurance, increase your rates. Since natural flood damage and earthquake damage are typically not covered by standard home insurance policies, depending on where you live, there is a real chance you'll need to add either or both of these separate coverages.

Deductible Levels

One tried-and-true way to reduce your insurance policy's premiums is to increase your deductible. However, while a higher deductible leads to lower premium rates, it also leads to a higher out-of-pocket cost if you need to file a claim. Keep in mind that you won't receive any reimbursement from your insurance company until after you've paid your full deductible amount yourself.

Some home insurance policies include multiple deductibles for different types of coverage. For example, in certain regions, policies may come with separate wind or hail damage deductibles. If you had this type of policy and had to file a claim for wind or hail damage, you might have to pay more than one deductible, such as a wind coverage deductible and a dwelling insurance deductible, before receiving reimbursement.

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Home Features and Liability Risks

The more features your home has, the more it may increase your liability risk. For example, if your home has a trampoline, swimming pool, or fireplace, your insurance company may consider it an increased liability risk. These features can pose a greater risk of bodily injury or personal property damage to third parties like guests and visitors, and increase your chances of having to file a claim through your liability insurance.

The good news is that you can also add features to reduce your home's risk. Installing safety and security systems may earn you a discount from your home insurance company. Be sure to ask your independent insurance agent about any home insurance discounts you qualify for to help reduce your premium rate.

Credit-Based Insurance Score

In states where this rating factor is legally allowed, many insurers use a credit-based insurance score to predict a homeowner's risk. The higher an individual's credit score, the more positively it can affect their home insurance rates. Maintaining good credit habits can lower home insurance costs because the insurance company may view the individual as less of a risk for filing insurance claims.

Ownership Status and Marital Status

Your homeowners insurance premiums can be affected by whether you own your home outright or finance your purchase. If you have a mortgage on your home, your mortgage lender can dictate the type of coverage required, which may lead to higher premiums. If you own your home outright, you have the full authority to choose which types of coverage you want to include in your home insurance policy, which can mean lower rates.

Additionally, married homeowners often have lower home insurance premiums than single homeowners. Married couples have been deemed statistically less likely to file home insurance claims than their single counterparts. As such, married homeowners usually have cheaper home insurance rates.

Proximity to Bodies of Water and Flood Zones

The closer your home is to a major body of water or flood zone, the more expensive its insurance premiums are likely to be. Living near an ocean, lake, or flood zone presents a much higher risk of flooding and storm damage. Because of this, insurance companies view you as more of a risk for filing future claims for damage and destruction.

Further, if you live near a body of water or are in a flood zone, flood insurance may actually be required, especially if you have a mortgage. Flood insurance is a separate coverage not included in most standard home insurance policies. If you need flood coverage, this will increase your overall premium costs.

An Independent Insurance Agent Can Help You Find Affordable Homeowners Insurance

If you're looking for homeowners insurance that delivers quality and affordability, no one's better equipped to help you find it than a local independent insurance agent. These agents have access to multiple home insurance companies, so they're free to shop and compare quotes and policy options for you. 

They'll get you set up with a policy that delivers the best overall blend of coverage and cost. And down the road, your agent can help you file home insurance claims or update your coverage when the time comes.