The national average cost of homeowners insurance is $1,211 per year or about $101 monthly. But average annual premiums range drastically from one state to the next—and even from one insurer to the next, based on elements like the location and value of your home, personal factors like your credit score, and even your neighborhood’s claims history. With so many factors at play, finding affordable homeowners insurance rates can feel like a crazy game of poker.
Keep reading to understand what factors affect your monthly insurance costs and how to play whatever cards are in your hand.
Factors That Influence Your Insurance Premiums?
Your homeowners insurance policy protects your home and family in case of property damage from natural disasters, theft, and vandalism and even provides liability coverage for your family. That’s why home insurance policies are so important and why we’re willing to pay the big bucks if it means our homes and families are protected.
But protecting your personal property doesn’t cost only you money; it costs your insurer money, too. If you’ve shopped for home insurance at all, you’ve probably noticed that the cost of home insurance ranges dramatically from one insurer to the next.
So how do homeowners insurance companies determine their rates? And which factors leave homeowners paying the highest monthly premiums?
To account for all potential risk factors, home insurance pricing generally accounts for components related to your family, your home, and your surrounding area.
- Credit score: Most home insurance companies check potential policyholders’ credit scores before determining their annual rates. (There’s no better time than the present to catch up on those overdue credit card payments!)
- Insurance claims history: The more insurance claims you’ve filed in the past, the more insurers are likely to charge you for coverage.
- Pets: Since the liability portion of your home insurance policy covers pets, owning certain dog breeds or exotic pets can result in higher home insurance costs.
- Age: Older homes typically cost more to insure because they often cost more to repair.
- Condition: If your home isn’t up to current building codes or is otherwise especially prone to damage, your rates will reflect the risk of insuring your home.
- Roof: The age, condition, and material of your roof will affect your monthly premiums. If your roof’s age and condition leave your home vulnerable to future damage, your rates will be higher. Additionally, certain roof types cost more to repair and replace, resulting in higher premiums.
- Value and cost to rebuild: Your home insurance coverage should cover the entire cost of rebuilding your home in case of a total loss. More expensive homes in areas with high building costs will cost more to insure.
- Other structures: Certain additional home features, like swimming pools, hot tubs, and trampolines, can be costly to repair or increase the risk of someone getting hurt on your property, making your home more expensive to insure.
- State: Average home insurance rates are largely determined by your state; each state’s home insurance policies are slightly different (like in Hawaii, where coverage excludes hurricane damage). In 2020, the top 10 most expensive states to insure a home in were Louisiana, Florida, Texas, Oklahoma, Kansas, Rhode Island, Mississippi, Colorado, Massachusetts, and Nebraska.
- Natural disaster risk: Your natural disaster risk will affect the cost of your home insurance, regardless of which state you call home. Even in states with relatively low premiums, like Oregon and Vermont, the closer you live to a disaster-prone area, the higher your monthly payments will be. Additionally, states that are more prone to wind and hail damage often require policyholders to pay separate wind and hail deductibles in case of damage. Nineteen states, including Alabama, New York, and Virginia, currently require a separate wind and hail deductible, and while this doesn’t increase your monthly insurance payments, it will decrease your potential payout after a windstorm.
- Crime rates: Homeowners premiums are higher in neighborhoods with high break-in and property crime rates.
- Property values: If most of your neighbors live in high-value homes, you’ll likely pay higher insurance premiums.
- Insurance riders: Depending on your neighborhood’s risks (and your own personal preferences), you may need to add insurance riders (also called endorsements or add-ons) to your policy. Mortgage lenders often require homeowners in flood zones to purchase flood insurance. Homeowners in California and North Carolina might consider additional fire insurance policies.
A lot goes into determining your specific home insurance rates, so it’s clear to see how one insurance company might calculate higher or lower premiums than another. Whether you buy a policy from GEICO, USAA, or the mom-and-pop insurance shop nearest you, the price you pay should reflect the coverage you receive. At the end of the day, your homeowners policy is based on your specific insurance needs, and the more protection you want, the higher your monthly payments will be.
Monthly Home Insurance Rates by Coverage Amount
At OnesFinance, we believe comprehensive insurance coverage shouldn’t cost an arm and a leg. Still, your monthly insurance payments will likely be proportionate to the amount of coverage you want.
The most basic home insurance policies include dwelling coverage, which protects your home in case of various natural disasters and home break-ins. Your dwelling coverage limit (the amount of money your policy covers in damages) should be high enough to completely rebuild your home, and these limits range anywhere from less than $50,000 to over $500,000, giving homeowners plenty of options to fit any insurance needs.
This dwelling limit largely determines your annual premiums as well as how much coverage your policy includes in other areas of protection.
For instance, HO-3 policies (also known as special form policies, which are the most popular policy type nationally) include dwelling coverage, other structures coverage, personal property coverage, loss of use protection, personal liability insurance, and medical payments coverage. Each of these coverage limits (aside from personal liability and medical payments) is set as a percentage of your dwelling coverage.
Generally, the limits are 10 percent of your dwelling coverage for other structures coverage, 50 percent for personal property, and 20 percent for loss of use (also called additional living expenses coverage). This means if you have $300,000 in dwelling coverage, you also have $30,000 of protection for your other structures, $150,000 for personal property, and $60,000 for additional living expenses.
In other words, the more dwelling coverage you have, the more coverage your policy includes overall.
Keep in mind, the higher you set your liability limits, the higher your premiums will be. Additionally, opting for replacement cost coverage over an actual cash value policy will leave you with higher premiums as well.
So just how much is homeowners insurance a month?
Check out the national average monthly cost of home insurance (for HO-3 policies) by dwelling coverage amount.
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Lowering Your Monthly Insurance Payments
If you’re looking to lower your monthly insurance payments (and who isn’t?), there are plenty of ways to cut costs without cutting coverage.
The first and probably easiest way to save is by switching from monthly payments to annual billing. Some home insurance companies offer discounts to homeowners and renters who pay their annual premiums in one lump sum. And while a few extra bucks every month might not seem like much, small costs add up pretty quickly.
The next and most popular home insurance discount is found by bundling multiple policies. If you’re looking for home and auto insurance, buying both policies with the same insurer can save you upwards of 20 percent on your premiums.
There are also a few ways to save on premiums that might cost you a bit more upfront (or later on).
The quickest and cheapest (up-front) option is raising your deductible. Having a higher deductible will decrease your monthly payments now, but when it comes time to file an insurance claim, your payout will be smaller.
Another relatively inexpensive option is to install an at-home security system, a fire extinguisher, or deadbolt locks in your home. Most insurance agencies reward policyholders with safety features such as these but talk to your insurance agent to see if the company has any stipulations.
Fortifying your home is likely the most expensive option but could save you the most in the long term. If your insurance rates are high because of your roof, for example, fixing or replacing it will dramatically decrease your annual premiums and increase the likelihood of an insurance payout in case of future roof damage. This option isn’t for everyone, but it’s something to keep in mind if your home and insurance rates could use a facelift.
Home Insurance Premiums – Frequently Asked Questions
Is home insurance legally required?
No, unlike auto insurance, homeowners are not legally required to purchase home insurance. If you have a federally backed mortgage, though, your lender will probably require you to insure your home.
What’s the most common insurance peril?
According to the Insurance Information Institute, wind and hail damage caused 34.4 percent of damages in 2018 and has been the leading cause of property damage claims each year since 2014.
How much home insurance coverage do I need?
Your dwelling coverage, or the part of your policy that pays for damages to your home, should be high enough to rebuild your entire home in case of emergency, but not so high that you’re paying for coverage you don’t need. You can calculate this amount by multiplying your home’s square footage by the cost to rebuild per square foot in your area.