Homeowners insurance is an invaluable safety net for homeowners. While the monthly cost of home insurance is out of the question for most people, paying it monthly can help protect you from financial disaster.
Homeowners insurance (also known as hazard insurance or homeowners insurance) is not required by federal or state law, but most mortgage lenders require insurance to obtain a mortgage loan. Even if you're buying a home with cash, homeowners insurance is still required.
So why is home insurance so important?
We explain why, share common factors that can affect your premium and give you tips on how to save money on your policy.
What is home insurance?
Like all insurance, home contents insurance is a contract. The insurer undertakes to protect the insured against unexpected financial losses. Home insurance has two purposes:
Protect your home and other assets
Home insurance provides the homeowner with financial protection against certain perils or catastrophic events (e.g. fire or theft). It also protects you from liability if someone is harmed on your property.
Protects the lender's interest in the home.
Home insurance protects the lender's financial investment in the home and ensures that the lender will be repaid even if the home is damaged or destroyed.
What does home insurance offer?
Home insurance can protect homeowners in many situations. The insurance company (aka insurance company or insurance company) generally reimburses the homeowner for most of their cost of repairing covered destruction or damage.
Homeowner policies vary widely in that they are tailored to the needs of a specific homeowner and lender.
Standard homeowners insurance typically offers or covers the following:
- Damage to your home:Your policy will pay to repair damage to the outside and inside of your home when a covered event occurs, such as a fire. B. a tornado or vandalism. If your home needs remodeling, your policy will compensate you for the construction.
- Repair or replacement of your property:Most items in your home, such as furniture and clothing, are covered by standard homeowner insurance. Your belongings are usually covered with 50% to 70% of the sum of your household contents insurance.[1]
- Liability insurance:Your home insurance generally protects you from lawsuits if you or your pets accidentally hurt someone, whether at home or away, or if you damage someone else's property.
- Additional living expenses:Home insurance covers the additional living expenses for everyone living in the home if they are evicted as a result of an insured event.
Most home insurance policies can be customized with tabs and other modifications to better suit your needs.
How much does home insurance cost?
Statewide, the average cost of standard home insurance is about $1,272 per year (about $106 per month). However, the average cost may vary by state.[2]
The five most expensive states for home insurance are[2] [3]:
- Louisiana: $2,037
- Oklahoma: $2,000
- Florida: $1,988
- Tejas: 1.982 $
- Rhode Island: 1.731 US-Dollar
The five cheapest states for home insurance are[2] [3]:
- Oregon: 727 $
- Utah: 743 US-Dollar
- Wisconsin: 750 US-Dollar
- Nevada: 791 US-Dollar
- Idaho: 799 US-Dollar
But no matter what condition your home is in, what you pay for your policy depends on many other factors.
What factors affect the cost of home insurance?
The cost of home insurance mainly depends on the risk of an insurance company. An insurer will assess the likelihood that a homeowner will file a claim (a request to pay you for an insured loss or damage).
Insurance companies consider several factors when creating a homeowner's risk profile. A high risk profile indicates a greater likelihood of a claim for damages and a higher estimated cost of recovering damage or liability for the owner, resulting in a high-priced insurance policy.
Here are some of the most common factors used to determine the cost of home insurance:
previous claims
If you filed a claim with your current insurance company, made claims when you lived in another home, or if the previous owners of your current home made claims, your rate will likely be higher.
Why? Well, it has been shown that people who make claims are more likely to claim again. And if there were previous problems at home that led to the opening of a claim, there are likely other problems at home.
Multiple claims for the same hazard (wind damage, water damage, etc.) Another tariff increase? Serious claims like a complete home remodeling are likely to increase your rate.
location of the house
Your insurance company will check your place of residence carefully. Are you in a high crime area? Is the area prone to tornadoes? Is the house near a fire station and fire hydrant?
All of these situations directly indicate a risk.
For an insurer, a home in a high crime area is more likely to suffer from crimes such as vandalism or burglary.
A home in a tornado-prone area is more likely to be damaged by a tornado. A home near a fire station is less likely to suffer major fire damage than a home 50 miles away. (FYI: Your insurance company can even verify that your local station is staffed with professional or volunteer firefighters.)
The cost of rebuilding or repairing a home also varies by location. Labor and material costs largely depend on the location of the house.
age and condition of the house
In general, older homes are at greater risk of damage than newer homes. Faulty wiring, combustible materials, and old heating systems are likely to result in a higher premium.
On the other hand, homes with updated electrical systems, a new roof, or a security system that rivals Fort Knox would likely lower your home insurance premium.
Amount of coverage and deductible
When taking out an insurance policy, the costs are determined based on the information in the policy. Here are some things to consider:
- Prima:You pay this annually to the health insurance company. The more you pay, the better your insurance coverage.
- Deductibles:This is what you pay out of pocket before the insurance company starts paying. A $1,500 deductible has a lower premium than the same policy with a $500 deductible. You pay more out of pocket with a higher deductible.
- Limits of liability:Every household contents insurance has a liability limit. It is the maximum amount an insurance company will pay for damage after deducting the excess.
- Apartment limit:Most home insurance policies will cover the full replacement value of your home, or the cost of physically replacing your home, not the current market value of the home. If your home has increased in value, it may make sense to buy it back.
Homes that are more expensive to replace have higher house limits (the amount insurance will pay to rebuild your home), higher premiums, or policies with higher deductibles. Other coverage areas are usually expressed as a percentage of a home's replacement value. For example, personal ownership limits are typically set at 50% of a home's replacement value.[4]
your credit history
In most states, insurers use a credit-based insurance value to help them build your risk profile and determine how much you will pay in insurance costs.
By the way, your insurance score is not the same as the credit score traditional credit bureaus give you. The factors that go into calculating your insurance score and their percentage importance in your score vary.
Dogs and external elements that can cause injury
Nobody needs to tell you how cute, friendly and adorable your dog is. However, some dog breeds are more prone to injury than others. If your dog is one of these breeds, you'll likely pay more for home insurance.
Do you have a pool or trampoline? Be prepared to pay more for home insurance. Insurance companies are generally not fans of these features. They can be fun, but they make your property more dangerous and increase the likelihood of a claim.
additional insurance
Standard insurance may not cover everything the homeowner wants to cover.
For example, a homeowner may want extra coverage if the home is in an area where flooding is likely. Floods are not usually covered by home insurance. Homeowners are often required to purchase a separate policy for this specific risk.
Homeowners may also want more coverage for items that are worth more than a standard policy, such as expensive jewelry or works of art. This type of supplemental insurance is usually confirmation or pilot. It is a supplement to the main policy, providing more coverage when the main policy is not enough.
Separate policies and supplements increase the cost of insuring your home.
How can you save money on home insurance?
You know what can increase the cost of your home insurance. Now let's see what you can do to reduce it.
Compare policies and insurers
Purchasing for your insurance company is time well spent, but don't just focus on the dollars and cents. Find an insurance company that will answer your questions and concerns and help you if you need help filing a claim.
You also want to confirm that your carrier is in good financial standing.The National Association of Insurance Commissionersis a good resource for researching insurance companies. Standard & Poor's or Moody's are also worth a look. These companies rank insurers based on their financial health.
Provider discounts for bundled insurance products
Insurance companies often offer discounts on bundled products. Buying your homeowners insurance and auto insurance in the same place gives you a 5% to 15% discount on the premium for each policy.[4]
Replacement cost versus actual present value
Most home insurance policies use actual present value (ACV) as the standard for personal property insurance and replacement value (RCV) for home insurance.
ACV replaces the value of your property but deducts depreciation. RCV replaces items with something similar to current prices. ACV offers less coverage but tends to be cheaper than RCV.
Negotiating the type of replacement property you receive can save you money when you are better off exchanging less coverage for a lower premium.
Add security and protection features
Installing a security system, upgrading smoke detectors, and putting stronger locks on your home can all reduce your premium. Depending on the level of expansion of your security system, you will receive a discount of 15% to 20% on your premium.[5]
Improve your credit score
Your credit rating is one of several factors insurance companies will consider. While it may take a while for you to appear in your credit history,Improving your credit ratingcan help lower your premium.
Use the same insurer that you used
Some insurers reward loyalty. If you've used the same insurance company for years, ask if they give you a discount since you're a long-term policyholder. Some insurers offer up to a 10% discount to customers who have been customers for 6 years or more.[5]
take inventory
If your insurance policy covers specific personal items, it's a good idea to take an annual inventory and write down the value of each item. When you know what you have, you end up not paying to insure items you no longer own or that have lost their value.
Get your home insurance quote
Now that you know all about home insurance costs, you'll be better prepared to ask the right questions to prospective insurers. Pro Tip: It's always a good idea to get some estimates. And it wouldn't hurt to review your policy every year.
Make sure your policy offers the protection you need, but not too much! So you can rest assured that your home and belongings are protected.
Insurance Information Institute. "What does normal home insurance cover?' Retrieved July 2022 from https://www.iii.org/article/what-covered-standard-homeowners-policy
National Association of Insurance Commissioners. "Fire Insurance Report for Homes, Owners and Renters, and Condominiums/Cooperative Units: Data for 2018 (2020).' Retrieved July 2022 from https://content.naic.org/sites/default/files/publication-hmr-zu-homeowners-report.pdf
Insurance Information Institute. "Facts + Statistics: Insurance for homeowners and renters.” Retrieved July 2022 from https://www.iii.org/fact-statistic/facts-statistics-homeowners-and-renters-insurance#Homeowners%20insurance%20expenditures
(Video) Home insurance costs continue to rise in FloridaNational Association of Insurance Commissioners. "Home insurance consumer guide.” Retrieved July 2022 from https://content.naic.org/sites/default/files/publication-hoi-pp-consumer-homeowners.pdf
Insurance Information Institute. "12 ways to reduce home insurance costs.' Retrieved July 2022 from https://www.iii.org/article/12-ways-to-lower-your-homeowners-insurance-costs
FAQs
What is the average cost of homeowners insurance in the US? ›
The average cost of homeowners insurance throughout the United States is $1,428 per year for a policy with $250,000 in dwelling coverage. However, your actual rates may vary depending on a variety of factors.
How much has homeowners insurance increased in the last 12 months? ›The index tracks the average premiums of the five most competitive home and contents policies available, data which is showing that premiums among the most competitive providers are still up 4.1% over a 12-month period.
Which state has the highest home insurance rates? ›The average cost of homeowners insurance nationwide is $2,777 a year, but rates vary by state. Oklahoma is the most expensive state for home insurance at $5,317 a year, while Hawaii has the lowest home insurance rates, averaging $582 a year.
Is home insurance getting more expensive? ›In fact, home insurance premiums were up an average of 12.1% last year, according to a Policygenius analysis of policy renewals from May 2021 to May 2022. [1] "Policygenius Home Insurance Pricing Report (2022)." Accessed August 01, 2022. For homeowners whose premiums went up, the average increase was $134.
How much does the average American spend on home insurance per month? ›The average cost of home insurance across the United States is $1,516 per year, or $126 per month.
What is the most common homeowners insurance policy? ›What it is: HO-3 coverage is the most common type of homeowners insurance. It is also known as special form coverage. Under HO-3 insurance, your home will typically be covered at its replacement cost, while your personal property will be covered up to its actual cash value.
Is homeowners insurance going up because of inflation? ›Homeowners insurance premiums can increase for several reasons, but the higher-than-expected increases homeowners are currently seeing are primarily due to inflation.
Why has home insurance gone up 2023? ›However, a rise in subsidence claims, a surge in frozen pipe payouts and the rising costs of building materials and labour costs could put pressure on premiums in 2023.
Why has my home insurance increased so much this year? ›Rising inflation, the changing nature of risk, and a host of other economic factors are driving property insurance premiums higher than they've been in more than a decade. Here we look at these factors in more detail and learn why now is the time to make sure your property valuation is up to date.
Which home insurance company has the highest customer satisfaction? ›Erie Insurance, Amica and Nationwide top the list for consumer satisfaction with property claims, according to a 2023 study by J.D. Power.
What percentage of Americans have homeowners insurance? ›
By the end of 2021, homeownership rates in the U.S. hit 65.5%. In the U.S., 93% of homeowners have some form of home insurance. Claims are made in 1 in 20 insured homes annually, while 1 in 40 homes make a claim related to wind and hail.
Why is home insurance so expensive in the US? ›Sky-high inflation is one of the main culprits behind the increase in premiums. Home insurance coverage is based on the cost to rebuild your home, and that may have gone up drastically as the price of many building materials has risen and supply chain issues have made the building process more expensive.
What is the 80% rule in homeowners insurance? ›Most insurance companies require homeowners to purchase replacement cost coverage worth at least 80% of their home's replacement cost in order to receive full coverage.
What are the three types of homeowners insurance? ›The three main types of property insurance coverage include actual cash value, replacement cost, and extended replacement cost.
Is it worth having an umbrella policy? ›Is umbrella insurance worth it? If you have significant assets, it's worth getting an umbrella policy. The liability insurance within your auto and homeowners insurance policies might not be sufficient if you get sued for an incident such as dog bite, car accident or accidental injury to someone else.
Is it better to pay house insurance monthly or annually? ›Is it cheaper to pay my home insurance premium annually? Yes - By paying annually instead of in instalments (i.e. fortnightly or monthly), you'll pay a lower premium and avoid instalment processing fees.
How much does the average American pay for full coverage insurance? ›The national average cost of car insurance is $2,148 per year, according to NerdWallet's 2023 rate analysis. That works out to an average car insurance rate of about $179 per month.
Do people pay home insurance monthly? ›Is homeowners insurance paid monthly or yearly? If you pay for your homeowners insurance directly, and not through an escrow account, then you can choose whether to pay monthly, quarterly, semiannually, or yearly. If your lender requires you to have an escrow account, your insurance payment is generally made yearly.
What are 2 things not covered in homeowners insurance? ›Termites and insect damage, bird or rodent damage, rust, rot, mold, and general wear and tear are not covered. Damage caused by smog or smoke from industrial or agricultural operations is also not covered. If something is poorly made or has a hidden defect, this is generally excluded and won't be covered.
What are the 4 types of insurance that everyone should have? ›There are, however, four types of insurance that most financial experts recommend we all have: life, health, auto, and long-term disability."
What are the 5 most common causes of homeowners insurance losses? ›
The most common causes of home insurance claims, from an analysis of Travelers Insurance policyholders, are wind, nonweather water damage, hail, weather-related water damage and theft. Altogether, these five causes make up 77% of all homeowners insurance claims.
How much has home insurance policy gone up? ›Consumer Intelligence reported that between December 2021 and October 2022, home insurance premiums increased by 2.8% - building on the 4.1% uptick that the firm recorded in home insurance premiums between October 2021 and October 2022.
Are insurance premiums going up in 2023? ›Car insurance costs are on the rise in 2023. According to personal finance website ValuePenguin, insurance rates across the US are expected to rise by 8.4%, bringing the total average premium for full coverage to $1,780 per year.
Why is my home insurance renewal more expensive? ›Generally home improvements increase the cost of your home buildings insurance, so you would expect to see an increase in your renewal quote. Finally, if you made any claims in the first year then it is highly likely that your home insurance quote will increase when it is time for renewal.
Is there any reason to keep old homeowners insurance policies? ›Generally, you should keep most insurance documents for at least as long as the policy is in effect or, if your policy has ended, until any still-open claims are settled.
Does insurance drop every year? ›Does car insurance decrease over time? Yes, car insurance decreases over time. You may find that your auto insurance rates go down as you get older or have teen drivers on board. And you might get discounts if you take out insurance with the same company for three to five years.
Does home insurance expire? ›A home insurance policy typically lasts for one year. A renewal statement will be sent to you a few weeks before its renewal date. If you choose to just pay your bill, most insurance companies will automatically renew your policy.
What affects the price of home insurance? ›Some of the factors that determine a home insurance premium include: where your home is located, its replacement cost, the age of plumbing and electrical services in the house, condition of the roof, distance from a fire hall or fire hydrant, your claims history and your insurance history.
Does number of occupants affect home insurance? ›Insurers will look at your personal details to work out a price that's right for you, including: The number of people in your household – More people indoors means more possessions, so the risk of accidents around the home increases. If people move in with you, you may need to pay more.
What causes your insurance rates to go down? ›While it can seem arbitrary, there are actual reasons you can see your price go up and down. Car insurance rates can change based on factors like claims, driving history, adding new drivers to your policy, and even your credit score.
Why is Oklahoma home insurance so high? ›
Oklahoma has the highest average annual homeowners premium in the U.S., largely due to its high risk for tornado damage. The average annual premium for homeowners insurance in Oklahoma is $3,659 for $250,000 in dwelling coverage, more than double the national average.
What is the average Florida homeowners insurance? ›How much does homeowners insurance cost in Florida? The average cost of homeowners insurance in Florida is $2,385 per year, or about $199 per month. That's 31% more than the national average of $1,820. In most U.S. states, including Florida, many insurers use your credit-based insurance score to help set rates.
Can I negotiate home insurance? ›Is homeowners insurance negotiable? You cannot negotiate your homeowners insurance quote, but you can lower the amount you pay by taking a variety of steps—maintaining a good credit score, paying in full, installing protective devices, researching discounts, and more.
What is the average annual homeowners insurance in Oklahoma? ›How much is homeowners insurance in Oklahoma? The average cost of homeowners insurance in Oklahoma is $2,278 per year, or $190 per month. That's 50% higher than the national average of $1,516 per year.
Does home insurance cover tornado damage in Oklahoma? ›Yes, homeowners insurance covers damage to your home and personal belongings caused by wind, rain, and fallen trees during a tornado. And if a tornado displaces you from your home and you're forced to live elsewhere, home insurance also covers your additional living expenses.
Is State Farm umbrella policy worth it? ›State Farm's umbrella policies are a good choice for customers with a high net worth who want extra coverage for property damage, injuries, and possible lawsuits that could result from various types of incidents.
What does an umbrella policy not cover? ›An umbrella policy gives you additional liability coverage. This can help cover the cost of injury to others or damage to their property. It does not cover damage to your own home, car or possessions.
Do retirees need umbrella insurance policy? ›Consider Adding Umbrella Insurance
For a senior who is living on retirement income, an automobile accident that is their fault can be a problem. They could be sued and put their assets at risk. Umbrella insurance is a form of liability insurance specifically designed to protect the assets of the insured.
About 37 percent of US households are “free and clear,'' meaning they no longer have a home mortgage to pay, according to a Zillow data analysis.
What percentage of US homeowners have no mortgage? ›A: 37% of U.S. households no longer have a home mortgage to pay, according to a Zillow data analysis.
Why is Florida homeowners insurance so expensive? ›
Essentially, Florida insurance companies must price policies so that they have enough money to cover claims expected from catastrophic losses such as hurricanes. Because Florida has the highest risk of catastrophe of any state, Florida homeowners insurance typically costs more than the national average.
Is hurricane insurance mandatory in Florida? ›Florida requires all homeowners to carry hurricane insurance if they live in a hurricane-prone area. This is because hurricane damage is not covered by standard homeowners insurance policies. If you live in Florida and don't have hurricane insurance, you're taking a big risk.
Is Florida insurance more expensive? ›...
| Coverage Level | Average Yearly Premium |
|---|---|
| State Minimum — $500 Comprehensive/Collision | $1,512 |