As with any other type of insurance, the price you pay for home insurance will depend on several different factors. In addition, it will vary by insurance company and state. While this list is not exhaustive, here are a few of the most commonly used factors that will affect your homeowners’ insurance rate.
The location of your home is one of the most significant drivers of your insurance premium. As we have discussed, this is due in part to the various weather events your home may be exposed to and the regulations set forth by the state in which the policy is written. However, the location also matters for more obvious reasons.
The distance to the nearest fire hydrant and fire station can determine the extent of fire damage to your home. As such, the price of your policy is also based on this information. Typically, homes that are within 1,000 feet of a fire hydrant and 5 miles of a professional fire station can expect to have lower premiums than homes that do not.
Also, houses that are situated in busy city locations may be more prone to theft or vandalism than homes in remote locations. This is another way in which your location matters to your home insurer.
Type of Home
The type of home you are insuring will also greatly impact the price of your policy. A multi-family is going to be larger and presumably have more kitchens and floors than a typical single-family home. Therefore, the cost to rebuild is higher.
There are also various styles of homes, and some types will be more expensive than others. Different architectural styles such as sloped ceilings, or flat roofs, may sustain more structural damage when involved in a loss. There is more risk to the insurance company with certain characteristics and so the cost to insure them will reflect that.
In general, the size of your home will impact the replacement cost of your home, which will affect the price of your home insurance. Consider the cost to built a 4,000 square foot home as opposed to a 1,500 square foot home. There will be more materials and more labor involved, so the price to rebuild will understandably be higher.
The type of roof on your home, including the shape, material and age will have an affect on your home insurance price as well. This is because the roof of a home is one of the most essential parts. It shields the home from the outside and protects you from wind, rain, ice, branches and debris.
Insurance companies will base your price on the durability and condition of your roof. The older a roof is and the less resistant it is to fire, hail and wind, the increased likelihood of damage to the interior of your home. As such, the price of your home insurance will be higher.
As mentioned a few times, the specifics of your home will determine it’s replacement cost, which will affect the price. Pocket doors, ornate detailing, crown moulding, and atrium windows or doors are all examples of characteristics that can drive up the price of your home’s replacement cost. These features are usually more expensive to purchase and therefore, cause the price of your home insurance to be higher.
While things like swimming pools or trampolines are fun and a great way to pass the time, they can also be responsible for causing injuries. As such, owning them can cost you more money on your home insurance. Studies show that over 100,000 people are injured every year on trampolines and 500 of those end up with severe neurologic damage.
I have seen a fair share of trampoline related liability claims during my career and it’s been enough of a deterrent for me to not purchase one for my own children. But for those who feel differently and own a trampoline, you must consider the potential implications. Not only can you be held liable for any injuries that arise, but your home insurance company may increase your rates, and possibly decline to insure you at all.
It’s not only trampolines or swimming pools to be concerned about either. Anything that substantially increases your risk of liability can affect your rates. This includes dogs, fire pits, swing sets, or tree houses.
The more claims you file, the riskier you are to insure, and the higher you can expect your insurance premium to be. From an insurance company’s perspective, a responsible home owner will take steps to prevent damage from occuring, and they will subsequently file fewer claims. As such, the price of insurance policies are often set to incentivize those with no or minimal losses.
Most insurers will offer a claim free discount or overall lower rates for these homeowners. But insurance exists for a reason, and losses happen. To ensure you aren’t penalized, try to only file claims for the financial catastrophic losses that you aren’t able to pay for out-of-pocket.
Home insurance prices vary by insurance company since not all companies weigh each factor the same. Some may put more emphasis on claim history, while others may put more on credit score, for example. There can also be a difference in base rate amounts and discounts offered.
Most insurance companies will use a credit-based insurance score to determine home insurance premiums. Statistically, those with a lower credit score will be more likely to file claims. While the use of credit scoring in insurance rate-making has been at the forefront of controversy lately, many insurers are continuing to use it and I don’t anticipate it going away anytime soon.
However, there are some states who have banned its use. In states like California, Massachusetts, and Michigan, insurers are prohibited from using credit scores to determine prices. Here is how you can expect your credit score to affect you in other states:
Remember that the higher deductible you choose, the lower your price of insurance will be. This is because you are shouldering more of the responsibility in a loss, which means your insurance company doesn’t have to pay as much. You are retaining more of the risk yourself.
Consider someone who has a $2,500 deductible on their home insurance. They aren’t going to be filing claims for any loss less than this amount. The insurance company is saving money by not having to worry about those smaller claims.
The age of your home greatly impacts the price you pay for your insurance because as a whole, older homes are riskier to insure. Characteristics of homes that were once commonplace decades ago are not always the safest today. Underground oil tanks, knob and tube electrical wiring, and lead paint are all examples of this.
Dogs & Other Animals
As mentioned previously, anything that increases your liability as a homeowner has the potential to impact the price and even eligibility of your home insurance. Dogs and other animals are no exception. According to the CDC, about 4.5 million dog bites occur in the United States and 800,000 results in medical care.
If a homeowner gets sued as a result of their dog biting or hurting another individual, the financial impact can be devastating. The liability coverage under a homeowner’s policy is $100,000 at a minimum, so the insurance company could wind up paying a significant amount in legal fees. This is why many insurance companies restrict certain dog breeds from coverage altogether.
Homeowners’ Insurance automatically provides 10% of your Dwelling Limit to cover any additional structures you may have on your property that aren’t attached to your house. Structures like unattached garages or sheds come to mind. But if this Other Structures limit is not sufficient to cover the additional structures on your property, you can increase this amount.
For example, if you insure your home for $250,000, this leaves you with a $25,000 coverage limit for anything unattached to your home. But if you have a barn, shed, and unattached garage that equals $50,000 in total, you will need additional coverage to protect these structures. Understandably, an increase in the amount you are insured for will affect the price of your policy.
Building Materials and Upgrades
When it comes to renovations or upgrades to your home, there are a couple of ways this can impact the price of your home insurance policy. First, as you renovate your home, you must consider the effect the upgrades can have on your replacement cost. Most likely, it will cause the replacement cost to increase, which also increases your price.
Secondly, you may also need coverage for the building materials while your home is under construction. There is special coverage one can add to their insurance policy to ensure these materials are covered in the event of a loss. But of course, adding additional coverage will also affect the price of your policy.
Either way, if your home is undergoing any major changes, it’s imperative to chat with your insurance company or agent.