Whether you are a longtime homeowner or have just purchased your first home, you might have questions about homeowners insurance. This is especially true for premiums, as many homeowners across the country have seen increases, and are probably wondering why.
How homeowners insurance protects you
Homeowners insurance is designed to protect homeowners from financial losses from covered events. If your home is destroyed, insurance steps in and your coverage helps you to rebuild your home and replace your belongings.
Or, if someone visiting your home is injured and sues you, your homeowners insurance liability coverage will help to cover the associated costs of medical and legal bills.
These are the three big homeowners insurance coverage areas: your home’s structure, known as dwelling coverage; your home’s contents, known as personal property coverage; and liability insurance to protect you from lawsuit damages.
Homeowners insurance coverage is required by your lender if you carry a mortgage. That’s because your lender wants to protect the property, as they are the lienholder until you pay off your mortgage in full. In fact, you might not even write a separate check to pay for your homeowners insurance premium, as it is frequently included in your monthly mortgage payment through an escrow account.
An escrow account allows your lender to pay your insurance company directly. This process ensures that payments are not accidentally missed, which could result in a dangerous lapse in insurance coverage.
Even if you are not required to have homeowners insurance after you pay off your mortgage, it is a good idea to continue to carry insurance. Accidents can happen at any time and without insurance, you would be responsible for paying to repair damage to your home out of pocket.
What factors determine homeowners insurance premiums?
There are many factors that go into calculating a homeowners insurance premium. Some factors are individual to you, such as a credit score and claims history. Some are attributable to the structure of your home, such as its age, building materials, and even the design and square footage. Location is another consideration. A home in an area with higher rates of burglaries costs more to insure, as does one in a region that has a lot of damaging hail storms.
When you apply for homeowners insurance, the request for coverage goes through a process called underwriting. This is where insurance underwriters examine all of the potential risk factors and determine how much to charge for a premium.
Here are some of the most common factors considered during the underwriting process:
- Cost to rebuild
- Age, size, and condition of the home
- Age and condition of the roof, particularly in areas that experience frequent storms
- Location
- Proximity of fire protection, such as hydrants and the nearest fire station
- Homeowner’s selections for additional coverage riders (earthquake coverage, or valuable personal property, for example)
- Deductible level
- Claims history
- The neighborhood’s claims history
- Assessment of any additional items that pose an injury risk (pools, trampolines, and pets—particularly dogs—for example)
Homeowners insurance is regulated at the state level, so there may be other aspects that are considered (or prohibited from consideration) when underwriters are determining your premium. Marital status and credit ratings are examples of factors that some states prohibit insurers from considering when they are calculating your premium cost.
What is the average homeowners insurance premium?
As noted above, homeowners insurance is regulated by states, and the factors considered in determining rates can be heavily influenced by regional variations in risk exposure. Coastal areas have higher risks from hurricane damage, the West Coast is more susceptible to earthquake damage, and the Southwest carries a higher wildfire risk.
This means that homeowners in one part of the country might see dramatically different premium rates than homeowners in another part—and a national average might be far different than what you pay.
With all of those caveats in place, a recent analysis by Rate Insurance of proprietary data showed an average annual premium cost of $1,723 in 2023.
How can I lower my homeowners insurance premium?
Premiums are rising almost everywhere across the country, but there are some steps homeowners can take to address these increases.
Increase your deductible
An insurance deductible is the amount a homeowner is responsible for covering before a claims payout. If your deductible is $500 and the total cost to repair your roof after damage from high winds is $3,000, your insurance covers $2,500. If you increase your deductible to $2,000, your insurance claim covers the remaining $1,000. By increasing your deductible, you are agreeing to take on more of the cost of repairs for a potential claim. This typically results in your insurer reducing your premium payment.
Protect your home with technology
When a home is damaged by a covered event, the amount of the loss is frequently impacted by how quickly the event was discovered. A home with working smoke detectors can mean repairing damage from a small fire, rather than replacing a whole room or portion of a home destroyed by a fire. “Smart home” technology is now available to help homeowners detect all kinds of potential problems before they result in claims-level damage. Leak detection sensors can alert to water issues before they cause expensive damage. Window sensors and security cameras can reduce the threat of burglaries. Talk to your insurer to see what kinds of protective measures can be installed that might qualify you for a discount on your premiums.
Proactively address issues
Pay attention to potential problems on your property that could result in claims. If you have trees on your property, especially ones close to your house, remove limbs that could damage the siding. Remove dead or diseased trees, and keep the perimeter around your home clear—especially if you are in an area that experiences wildfires. Examine walkways for trip hazards, and repair them as soon as possible. If you have a pool, make sure it is secured with fencing. If you have dogs, consider completing a Canine Good Citizen course. Reducing your liability exposure is just as important as protecting your home from a fire.
Periodically compare rates
Shopping around for homeowners insurance is a good idea. Although insurers use similar factors when underwriting, the factors a company chooses to weight in its premium formula can differ. This means that you could save money by switching your homeowners insurance carrier. Comparing homeowners insurance premium rates does not have to be a difficult task—call the experts at Rate Insurance. With access to a wide range of insurers, they’ll be able to point you to the right coverage at the best premium rate for what you need.
Disclaimer:
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Rate Insurance does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Rate Insurance. Rate Insurance, its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
