Homeowners Insurance Rate Factors

Your home is probably your most valuable asset, but that doesn't mean you have to pay an arm and a leg to protect it from harm. Learn about the variables impacting homeowners insurance rates and how you can reduce your home insurance costs.

image of house needing the protection of home insurance

Few homeowners are foolhardy enough to purchase a piece of real estate and not have it protected by insurance. Most are required to have homeowners insurance coverage as a condition for their mortgage. The rest understand how risky it is to leave themselves vulnerable to financial ruin should some tragedy damage or destroy their home. Decades worth of income could literally go up in an instant, transformed into ash.

If this sounds like something you want to avoid, you're in the company of millions of others who seek out financial protection for their home in the form of homeowners insurance.

However, while millions of people have homeowners insurance, few pay identical premiums. A handful of factors can have a dramatic effect on the rates you'll pay for your policy. To help you anticipate this expense before you decide to buy a home and to take steps to reduce your costs after you buy it, here are the most influential factors that affect homeowners insurance rates:

#1 Home Value and Policy Type

Naturally, how much the home is worth will dictate how much coverage you receive and, consequently, how much in premiums your insurer will want. Your total coverage amount should only include the cost of replacing your home’s structure, though. Make sure you do your research and knock off the value of the land from the appraised property value. Or better yet, look up how much it would cost to rebuild your home as well as the costs you will encounter while you wait for it to be completed.

Other elements that can affect your policy type and costs include:

Each insurer charges different rates for many common home insurance coverages. That's  why it's so important for consumers to compare home insurance quotes from multiple insurance companies to get the lowest rates.

#2 Home Structure and Age

The type of home you own can have a huge impact on how much of a risk the insurance company perceives it to be. For instance, brick homes may see lower premiums than wood-sided homes because of the reduced risk of fire hazard, collision damage or structural collapse. Other design factors that influence premium costs could include the type of foundation you have, your site drainage and even the number of floors.

Going hand-in-hand with home design is the era in which your house was built. Older homes often had different standards for electrical wiring, ventilation and general building code. Aging components will also be more prone to wear and breakdown, presenting an increased risk. Some homes may even have problems lurking like asbestos or lead paint. Having some of these features updated to modern standards — for example, installing a new roof — can sometimes offset these costs.

#3 Location

Realtors love emphasizing location so much that they often repeat it three times. Feel free to add a fourth time since location can also impact the amount you will pay for insurance. The biggest reason is that some homes are farther away from emergency responders than others. Distant fire stations and even a fire hydrant being a few yards further away can be reflected in increased premiums. If home insurance costs are a major concern when buying a home, find one closer to a fire station if possible.

Location can also make a difference in natural or man-made disasters. Some areas are more prone to, for example, wild fires or storm damage. Other times, a higher crime rate will cause your rates to go up in anticipation of thefts or vandalism. Do your research before you buy to make sure that perfect home of yours isn’t only vacant because someone high-tailed it to a safer part of town.

Finally, the city or county your home is located in can raise or lower the costs of administering insurance. For example, some court systems may be more likely to weigh in favor of insurance customer plaintiffs for civil court claims disputes, causing insurers to charge more in response.

#4 Safety Features

The good news is that most insurers will give you a discount for installing certain safety systems in your home, helping you offset the costs of being in a crime-prone or fire-prone area. Having fire safety systems that include carbon monoxide detectors and are supplemented by charged and tested fire extinguishers can give you one such discount. Installing motion detectors, burglar alarms or barred windows can also help with some insurers or areas. Ask your insurer to learn about programs like these that reduce your premium costs while also making your family safer.

#5 Claims History

One of your biggest reasons for paying extra insurance costs may be something you have not really kept track of. Every insurance customer for any type of policy has their claims history tracked diligently and documented in the Comprehensive Loss Insurance Underwriting Exchange (C.L.U.E.) Claims can stay on your individual C.L.U.E. report for a period of three to seven years. A majority of insurers will look most closely at claims filed in the last three years according to their frequency, size and the ultimate outcome.

Just like your credit report, you can request a copy of your C.L.U.E. report and see if it matches your actual claims history. Some people are surprised or downright shocked about the information they find, such as discovering a “claim” was filed when they so much as called their agent following a storm. You can sometimes dispute discrepancies like these to have them removed from your record, hopefully reducing your insurance costs at the same time.

#6 Credit History

Just like claims histories, credit histories can have an effect on the rate of insurance premiums you pay. While the connection might not be as compelling, some homeowners insurance carriers still maintain that there is a strong enough correlation between poor credit history and high risk of filing a claim. Some states have made it illegal to charge home insurance customers more based on their credit history.

#7 Attractive Nuisances

Attractive nuisances are objects that might lure people onto your property where they could possibly get injured. The strongest examples are pools and trampolines.

You can often build sturdy fences and post “No Trespassing” signs to alleviate the perceived risk, but these recreational possessions will still likely raise your home insurance costs. Liability from permitting people to come visit and getting injured means that insurers will try to offset the risk with a higher rate.

#8 Dog Bites

Dog breeds that are considered risky by some members of the insurance community can be seen as an increase in the likelihood of a liability claim. Even pups that have never harmed anyone could be discriminated against based on their breed or physical characteristics.

Some insurers frown on this practice because of discrepancies in data and situations that could lead to inaccurate conclusions. If you love your Pit Bull, Rottweiler or Shiba Inu, then try to find an insurer who will love them back by not penalizing your liability premiums. Expect your rates to go up significantly if your dog actually bites someone, though, even if it's a 2.5 pound Chihuahua.

#9 Home Business

Home businesses often create new scenarios that would never be seen if the home was just used for dwelling. Anyone who operates an office or business out of their home should expect increases in coverage, especially if they want to protect valuable business assets like a professional photo copy machine.

Inviting clients regularly onto your property poses a slew of added liability risks, too. Be open with your insurer about the amount of business traffic you will see and discuss special policy add-ons that can make covering these risks cheaper for both you and them.

Staying on Top of Your Coverage

Along with anticipating existing costs, you should request more coverage or less coverage when your situation changes. Buying new, valuable possessions or having a renovation that adds value should go along with adding coverage to protect these new assets.

Shopping Around

If these factors seem like quite a lot to take in, realize that not every insurer will weigh them equally. In fact, most insurers will provide you with a wide range of premiums based on what formulas and practices they personally use to assess risk.

Use QuoteWizard to find the best home insurance company who can give you the coverage you need at the cheapest possible price. That way, your home can be protected without you having to eat ramen noodles every night to pay for it.

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