Factors that affect the cost of homeowners insurance
A number of factors influence the cost of homeowners insurance, including:
Location
Location is one of the most important factors when it comes to homeowners insurance. Not only does your ZIP code affect the cost of coverage, but your specific neighborhood can also have an impact.
Some areas are more prone to natural disasters, like hurricanes or wildfires, or have higher crime rates. As a result, homeowners in those areas pay more for insurance. And if you live in a high-risk area, you may need to purchase extra coverage like flood or earthquake insurance.
The size of your home can also affect the cost of homeowners insurance. The more square footage your home has, the more you can expect to pay for coverage. That’s because the insurance company is taking on more risk by insuring a larger property.
Age of the home
The age of your home is one of the most important factors when it comes to homeowners insurance.
The older your home is, the more likely it is to suffer from damage that could lead to a costly insurance claim. Older homes often have features or construction materials that are expensive to replace, such as ornate trim, stained glass, or stonework. As a result, insurers charge more for coverage on older homes.
Keep Reading: Why Does the Age of My House Affect Home Insurance Premiums?
Type of construction
The type of materials your home is made from can affect the cost of homeowners insurance.
Homes built from long-lasting materials, like concrete and brick, are generally less expensive to insure than wood-frame homes because wood is more susceptible to fire, wind, and water damage.
Proximity to fire protection
The closer you are to a fire hydrant and a fire station, the less expensive your homeowners insurance will be.
This is because firefighters can quickly extinguish a blaze if there is a hydrant nearby, and they can get to your home faster if it’s close to a fire station. Homes near a fire hydrant or in a community with a professional fire department may cost less to insure than homes located further away from fire protection.
Level of coverage
The type of homeowners insurance you choose will also affect the cost. The most common form of homeowners insurance, HO-3, covers your home and its structures for all risks or perils that aren’t specifically excluded in the policy.
To reduce your costs, you could downgrade to an HO-2 policy, which is a named-perils policy, meaning it covers only damage from events or perils specifically named in your policy, such as fire, windstorm, hail, and theft. But if you incur a loss from an event outside of the named perils, you’ll have to pay for the repairs or replacement out of pocket.
Other coverage options also affect your premiums. For example, an actual cash value policy, which pays the depreciated value of your property, is less expensive than a policy that pays the property’s replacement cost without a deduction for depreciation.
Riders that offer additional coverage for things like jewelry, art, or electronics can also drive up the cost of homeowners insurance.
Learn More: Actual Cash Value vs. Replacement Cost: Which Is Best?
Claims history
Your homeowners insurance rates are also affected by your claims history. If you’ve filed a lot of claims in the past, or if your home has been damaged in multiple incidents, insurers will likely charge you more for coverage.
This is because homeowners who file frequent claims may be more likely to make a claim in the future, and insurance companies have to cover their own costs when they pay out a claim. So they raise premiums to account for the increased risk.
Keep in Mind: When your homeowners insurance company agrees to pay a claim, you’ll have to cover your deductible amount out of pocket before your insurance begins to pay.
