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Here’s what you need to know about homeowners insurance premiums and how they work. (Shutterstock)
Homeowners insurance is vital because it can protect your home against various perils, such as fires, windstorms, break-ins, and other unexpected events. The price you pay for this insurance — your home insurance premium — varies based on multiple factors, including your home’s location, your insurance provider, your coverage amount and other considerations.
Here’s what you need to know about homeowners insurance, and some tips on how to lower your premiums.
Credible makes it easy to compare homeowners insurance quotes from various providers.
What is a homeowners insurance premium?
Your homeowners insurance premium is what you pay to an insurance provider to keep your policy active. What this insurance covers depends on your individual policy.
That said, a standard homeowners insurance policy usually covers the following, according to the Insurance Information Institute:
- Your home’s structure
- Your personal belongings
- Liability coverage for any damage you or your family members cause to others
- Living expenses if you have to temporarily relocate because of damages to your property.
The amount of home insurance you need depends on several factors, such as the value of your home and personal belongings, how much liability coverage you need, and how much it’ll cost to rebuild your home.
How much is the average homeowners insurance premium?
The average cost of homeowners insurance across the U.S. in 2019 was $1,278 per year, or $106.50 per month, according to data from the National Association of Insurance Commissioners (NAIC). But depending on where you live and the coverage amount you need, the price you pay could be lower or higher than the national average.
Home insurance prices vary widely by state. For instance, Louisiana residents paid an average of $1,954 for home insurance in 2019, while Oregonians paid an average of $755. One possible reason for this difference is that Louisiana is more prone to natural disasters, like hurricanes, which makes insuring homes riskier for insurance companies.
These states had some of the most expensive average home insurance premiums in 2019, according to NAIC data:
- Florida — $2,026
- Louisiana — $1,954
- Texas — $1,925
- Oklahoma — $1,877
- Mississippi — $1,577
These states had some of the least expensive average home insurance premiums in 2019:
- Utah — $754
- Oregon — $755
- Wisconsin — $762
- Idaho — $819
- Nevada — $828
How do insurers calculate your homeowners insurance premium?
When you apply for homeowners insurance, an insurer usually considers these factors:
- Location — Where you live has a huge impact on the price you pay for home insurance. Insurers typically review these factors about your location to assess your risk level: crime rates in your neighborhood, how prone the area is to extreme weather events (such as hurricanes or wildfires), your neighbors’ claims history, and how close your home is to a fire hydrant.
- Square footage — Since larger homes tend to cost more to repair or rebuild than smaller homes, you’ll likely pay more to insure a larger home.
- Age of your home — The age of your home is also a huge factor. In general, the older your home, the more likely it is to need repairs. As a result, older homes usually cost more to insure.
- Building materials — The cost to repair or replace your home’s building materials can also influence how much you pay for home insurance.
- Claims history — If you’ve filed several home insurance claims in the past, your premiums may increase when you renew your policy or purchase a new one.
- Credit-based insurance score — Most states allow insurers to use an insurance scoring model. This takes your credit history into account to assess how likely you are to file a claim. If you have a high insurance score and good credit, it could help you qualify for a lower insurance rate.
- Deductible amount — Your deductible is the amount of money you pay before your insurance kicks in. The higher your deductible, the lower your insurance premium will be. But the downside is that you’ll pay a higher out-of-pocket expense if you file a claim.
- Coverage amount — When choosing a policy, you should buy enough coverage to replace your home in the event it gets destroyed. The higher the amount of coverage you need, the higher your insurance premiums will be.
- Discounts — Insurance companies offer several discounts, such as new homeowners discounts, claims-free discounts, safety feature discounts, and loyalty discounts. If you qualify, you can save money on your premiums.
What to know about homeowners insurance rate changes
The price of insuring your home can go up or down based on individual factors, such as a change in your insurance score, as well as factors beyond your control, like inflation. For instance, if the cost of building materials goes up, insurers may increase your premiums. But if you add certain features to your home, your premiums could decrease.
Why your homeowners insurance premiums might increase
- You’ve filed multiple claims. The more claims you’ve filed, the riskier you are to the insurer. This means you’ll likely be charged a higher price. The amount your premium rises depends on the type of claim you file.
- Crime rates have increased in your ZIP code. If the crime rate in your neighborhood has increased over the past year, an insurer will likely consider you more likely to file a home insurance claim for theft or vandalism. As a result, it may raise your premium.
- Insurer filed for an average rate increase in your state. After a catastrophic event or large increase in claims in your state, an insurance provider may file for a rate increase across the board. If the request gets approved, your premium could rise.
Why your homeowners insurance premiums might decrease
- You bundled your home and auto insurance. Most insurers will give you a discount for purchasing auto insurance and home insurance together.
- You added features to your house. You may receive a discount for adding certain safety features to your home, like a security camera system, alarm system, or automatic sprinkler system.
- You installed a new roof. Insurance companies may give you a discount for installing a new roof, or one that’s made of specific material. For example, some insurers give customers a discount for installing certain types of metal roofs.
With Credible, you can compare homeowners insurance quotes from multiple providers, all in one place.
Ways to lower the cost of homeowners insurance
If the price of your homeowners insurance has increased or you believe it’s too high, here are five steps you can take to lower your premiums:
1. Shop around
Different insurance companies offer different rates and coverages.To get the best deal, compare rates and policies from at least three insurance companies. You can get free home insurance quotes online or by speaking with an insurance agent. When shopping, make sure to compare policies that have similar coverages.
2. Improve home security
You can get several discounts on your premiums for installing safety features that can reduce the risk of a criminal breaking into your home, or alert you about a potential disaster. These include video doorbells, camera monitoring, fire alarms, and smoke detectors. Check with your insurer to see what discounts are available.
3. Maintain good credit
Most states allow insurers to review your credit to assess how likely you are to file a claim. If you have good credit, you’re more likely to qualify for a lower premium. Two of the most important factors you should focus on are your payment history and total debt — combined, they account for 65{1b90e59fe8a6c14b55fbbae1d9373c165823754d058ebf80beecafc6dee5063a} of your FICO Score.
By paying all your bills on time and paying down debts, you can typically maintain a healthy credit score. And if you don’t have good credit, adopting these two credit-building habits could boost your credit score over time.
Another way to maintain good credit is to make sure your credit reports contain accurate information. You can view your credit reports from the three major credit reporting agencies — Equifax, Experian, and TransUnion — for free by visiting AnnualCreditReport.com. If you see any errors, you can dispute them directly with the corresponding credit bureau.
4. Pay in full
When you purchase home insurance directly from an insurance company, you usually have two options: Pay in full or make installment payments. If you choose to pay the cost of your annual premium upfront, you may receive a discount.
5. Bundle multiple insurance types
Do you have other insurance policies, like auto insurance, boat insurance, or motorcycle insurance? Some insurers may offer you a discount if you choose to purchase your home insurance and other types of insurance policies from them, instead of from several companies.
How to pay your homeowners insurance premium
You can pay your homeowners insurance premium in two ways: through an escrow account or by paying your insurance provider directly. If you pay via escrow, the cost of your home insurance gets added to your monthly mortgage payments. Your lender uses the funds to pay your homeowners insurance on your behalf.
If you choose to pay your home insurance provider directly, you can usually make monthly, quarterly, or yearly payments. Though it depends on the insurance company, you can typically make these payments via a bank draft or credit card.
What happens if you don’t pay your home insurance premium?
Most lenders require you to have homeowners insurance to protect the value of your loan. If you don’t pay your home insurance premiums, your insurance policy could lapse. When this happens, your lender may purchase a homeowners insurance policy on your behalf, and this new policy could be much more expensive.
Allowing your home insurance to lapse is risky because it leaves your home unprotected. If an unfortunate event happens, like a fire or windstorm that damages your home, you’ll have to pay for the cost of repairs or replacement out of your own pocket. Plus, your current insurer or a new one will likely charge you a higher premium.
Visit Credible to compare homeowners insurance quotes from different insurers in minutes.