Depending on what part of the country you live in, homeowners insurance can be purchased for a reasonable annual cost. But if you live in a state that sees its fair share of natural disasters, the premium may be higher than other states.
Homeowners and renters insurance premiums consider a number of factors that determine the rates policyholders see. Not all providers use the same criteria to calculate your premium. But here are 20 things that could influence your property insurance rates.
- Rebuild or replacement cost
- Home location
- Amount of coverage
- Size of homeowners insurance deductible
- Credit history
- Home age and condition
- Claims history
- Home materials
- Catastrophe exposure
- Distance from fire station
- Pets
- Pool or trampoline
- Optional coverage
- Roof
- Home safety features
- Insurance provider
- Bundling policies
- Stove type
- Home improvement projects
- Your age and employment status
1. Rebuild or replacement cost
When insuring your home, one of the biggest factors is the rebuild or replacement cost. Many people confuse replacement cost with market value.
Replacement cost is the amount you'd have to spend to rebuild the same house in the same spot from the ground up. Think of a home wiped off its foundation in the aftermath of a tornado. That rebuild project would be concerned with replacement cost.
Market value is different. It involves more than just the value of your house. Market value also considers the value of the land and many factors that make your home attractive to potential buyers such as the view, the neighborhood, the school district and nearby amenities.
If you base your replacement cost solely on a higher market value, you may overestimate the amount of coverage you need. This is a common mistake that leads many homeowners to overpay for insurance.
Or, you may make the opposite mistake and underestimate replacement cost if you base it on a lower market value. If you only buy enough insurance to cover your mortgage, you could face serious financial consequences in the event of a loss.
2. Where your home is located
Location can help your insurance company predict future claims and how much it'll cost to pay for them. For example, homeowners living in Tornado Alley — the area from North Texas to South Dakota — typically see insurance premiums that are up to 50% more than the national average. Conversely, homeowners in Hawaii generally have the least expensive premiums.
Large cities often have higher real estate values, leading to higher construction costs for repairs. Vacation and retirement areas where there is rapid economic growth have similar challenges. In addition, urban areas tend to have more crime, including theft and vandalism. That can lead to more insurance claims in your area.
Generally, regional weather patterns and natural disasters also lead to bigger claims. Frequent weather events or natural disasters can play a role in the overall risk that your location has. More on regional risks later on in this list.
Areas with lower growth, less crime and fewer major storms usually have lower insurance premiums.
3. Amount of property insurance coverage
As with other types of insurance, you have some choice as to how much coverage you want and how much risk you're willing to take. Your homeowners policy may include many different types of protection, such as:
- Dwelling coverage
- Personal belongings
- Loss of use
- Personal liability
- Medical payments
- Other structures
Although homeowners insurance isn't required by law, lenders may require you to carry property insurance. You may need insurance for at least the amount of your mortgage until you pay off your home loan.
4. Size of your homeowners insurance deductible
Your deductible is the amount of money you pay out of pocket on a claim before your insurance kicks in. Deductibles can be offered as a flat dollar amount or a percentage of your home's insured value.
Choosing a higher deductible may reduce your yearly premium while a lower deductible may increase it. However, a higher deductible does mean you'll pay more in the event of a claim before your insurance will provide benefits.
Your deductible may be a big-ticket expense. For example, a 1% deductible on a $250,000 home is $2,500. Make sure to save for your deductible in an emergency fund to better protect yourself from the unexpected.
5. Credit history and insurance score
To calculate your premium, insurance providers may check your credit history, although it's not allowed in all states. A credit report contains information about how you manage your money, including:
- The number and types of accounts you have
- Your credit limits or loan amounts
- Current account balances
- The length of your credit history
- Any bankruptcies
- Any past-due accounts sent to a collections agency
- New applications for credit or service
- Your payment history including timeliness, amount paid, etc.
Credit bureaus use this information to calculate your credit score. Insurers can use it to create an insurance score Opens in new Window . See note 1 This score helps your insurance company predict losses, including how likely you are to file a claim or pay your premium on time.
6. Age and condition of your home
Older, run-down homes may have higher insurance premiums than newer or well-maintained homes. Some insurers even offer a discount for newly built homes.
Insurance is all about risk for you and for your insurance company. Often, older homes aren't up to current plumbing, heating, wiring or roofing standards. That could increase the likelihood of a claim. The same is true if your home hasn't been properly cared for.
Some claims may not be covered if your insurance company determines the damage was a result of neglect.
7. Claims history
Looking at past claims can also help your insurer predict the likelihood of future claims. When an insurance company reviews claims history, they can approach it from multiple angles.
- Your history of making claims. If you're a "frequent flyer" when it comes to theft, damage or liability claims, your insurer may choose to increase your rate. Going claims-free for an extended period of time could qualify you for a discount.
- The history of claims made on your property. "Lemon laws" are only for cars, not homes. And while you may not be aware of claims history when buying a home, your insurance company might. If your house looks like a "lemon," it might affect your premium.
- Claims made in your area. Another way that location may play into your insurance rate is the quantity of claims made in your area. However, some states prohibit the use of your ZIP code as a rating factor.
8. Materials used to build your home
Some building materials are made to last and are strong enough to withstand wind, fire, rain and decay. Others aren't. That's why homes built with brick or masonry often have lower premiums than wood frame homes.
Upgrades inside your home may also affect your rate if they have a significant impact on your home's replacement value.
9. Your catastrophe exposure
Natural disasters can also influence rates. Examples include hurricanes, earthquakes, flooding, hail, snowstorms, freezing rain, tornadoes, high winds and forest fires.
For example, if you live in the Southeast United States, your property is more susceptible to hurricane damage. Homeowners in Montana will have to worry about ice and snow from winter storms. Meanwhile, those in California may be more concerned about earthquakes and wildfires.
Insurers may even factor in the risk of riots and terrorist attacks in your area to calculate your premium.
Events like these can cause catastrophic damage to your property. So you'll likely pay more for insurance if they're common in your area.
You may be able to save on your premium by making your home more disaster resistant.
Reinforcing your roof, adding storm shutters or retrofitting an older home to withstand earthquakes can help reduce the damage a disaster may cause to your property.
10. Distance from a fire station
When it comes to fires, every second counts. That's why your home's proximity to a fire department can affect your property insurance rate. The sooner you can get help in the event of a fire, the less damage it may cause — which means your claims may be smaller too.
11. Type of pets you have
Some insurers may also increase your premium or choose not to offer coverage based on certain dog breeds that could be considered higher risk breeds.
While your own four-legged friend may be a total sweetheart, your insurance company may still feel there's a risk. That's because liability claims for dog bites can be quite expensive, especially if there are legal fees involved.
12. Whether you have a pool or other "attractive nuisances"
Turning your backyard into your own private oasis or your children's adventure zone is a lot of fun.
But pools, hot tubs, trampolines and play structures are what insurance companies like to call "attractive nuisances." No matter how enjoyable they are, they can still cause injuries to people on your property. And those injuries can turn into expensive liability claims.
Keep in mind that if you own a pool, your insurer may require a fence around the pool for it to be covered. Not only will this help prevent children from jumping into the pool unattended, it could also help protect you from legal fees and medical expenses if anyone gets injured.
13. Adding optional coverage
If you want more coverage than your base insurance policy includes, you may be able to purchase additional policies to enhance your overall protection.
Umbrella insurance
A personal umbrella policy can offer extra liability coverage, so you have financial protection from additional damages and out-of-pocket legal expenses.
Umbrella insurance can also protect you against certain types of claims that aren't covered by your home insurance, like libel, slander and invasion of privacy.
Flood insurance
Whether it's caused by hurricanes, rain, melting snow or other events most homeowners insurance policies don't cover flooding. You need additional coverage for floods.
If you live in a high-risk area, you may already know this. In fact, your mortgage company may have required you to get flood insurance before approving your loan. However, even low-risk areas, including deserts, can be impacted by floods, which means there may be financial risk if you're not covered by flood insurance.
Earthquake insurance
As with flooding, standard homeowners and renters policies typically don't cover earthquakes. You'll need to purchase additional coverage to protect your property from the potentially catastrophic damage of a major quake.
Personal property extensions of coverage
With many insurance policies, the contents of your home are covered as a flat percentage of your home's insured value. For example, if your contents coverage is 50% and your home is insured for $200,000, you would have $100,000 in coverage for the contents of your home.
But, if you own special, valuable items such as jewelry, cameras, musical instruments, firearms or fine art, you may want extra coverage on top of your homeowners or renters policy. Some insurers call this "extra contents" coverage. USAA calls it Valuable Personal Property insurance, or VPP.
An added benefit of USAA VPP is that it can also provide coverage if your items are accidentally damaged or lost, and there's no deductible. You should always check with your insurer to confirm the exact details of your coverage.
Home sharing coverage
If you earn extra income by renting out a room in your home or the entire place, you may want to add home sharing coverage. Home sharing coverage is meant to help protect the property of the homeowner who is considered the primary resident. This coverage is unique for hosting people in your home. It is different from rental property insurance.
14. Roof condition
Your roof is your home's front line of defense against the elements, including rain, wind, snow and more.
But if your roof is older or damaged, it may not be able to do its job of keeping moisture away from your home. And make no mistake, water damage can be a big problem for you and your insurance company.
The good news is, if you repair an older roof or get a brand new one, your insurance company may reduce your premium since it can help protect you from other, more expensive losses. For example discounts may be available for roofs that are made with hail-resistant materials.
15. Home safety and protective features
You can take steps to improve the safety of your home. Protect your family from major sources of risk by installing fire sprinklers and flood detection devices, adding deadbolts to your doors, and using security systems. As a result, your insurance provider may offer a discount on your home insurance premium. Check out safety system options with USAA Perks®.
16. Staying loyal to your insurance provider
Depending on the company, you may get better rates by staying with the same insurance provider for many consecutive years, rather than switching between providers from year to year.
17. Bundling multiple policies
Many providers will offer discounts on your home or renters coverage if you also carry an auto insurance policy. It's another way your insurance company can reward you for being a loyal member and it can help you manage your insurance policies all in one bundle.
18. Heating your home with a wood furnace or wood stove
Wood furnaces and stoves can be cozy, but they can also increase your insurance rate. That's because these types of fixtures are more likely to cause house fires than other heating systems.
Your insurance company may also require professional installation or an inspection before they provide coverage. If you choose to install the stove yourself and your home later burns down as a result of poor workmanship, your insurance provider may decide the damage is not covered.
19. Home improvement or renovation projects
As we've already pointed out, older properties tend to have higher insurance rates, often because certain features of the home aren't up to modern building standards. If you choose to update those features, you may be able to decrease your premium by reducing the likelihood of a claim.
On the other hand, some home improvement projects — especially large-scale ones like putting on an addition or gutting the kitchen — could increase your home's value. If it'll cost your insurance company more to rebuild or replace your home, your premium will probably go up.
20. Age and employment status
Some insurance providers offer a discount for customers who are at least 55 years old and retired. Why? Because retirees tend to spend more time at home than working people. That means they have more time for home maintenance and are less likely to be burglarized.
Get the coverage you need
There are many factors that impact property insurance rates, so it's important to understand what insurance companies look for. Talk about your options with your insurance provider so you'll make the best coverage decisions for you and your family.