You Need Homeowners Insurance. This Is What Determines the Price

According to The Insurance Information Institute, nearly every American homeowner has homeowners insurance. It's easy to see why: your home is likely your most valuable asset, and you'll want to protect it in the event of a catastrophic event like a fire, a downed tree, or an accident within the home.

“Without a homeowners policy, a person would have to pay the cost out of pocket or risk losing their entire property investment,” Nancy Albanese, vice president of personal insurance at Bryn Mawr Trust Insurance Advisors, says.

Although home insurance is almost universal in the United States, costs vary greatly depending on a variety of factors. Continue reading to find out more.

How Much Does Homeowners Insurance Cost?

According to The National Association of Insurance Commissioners, the average annual premium for “all-risks” coverage on dwellings, the most common home insurance package, is $1,249 in 2018. Costs vary depending on which state the property is in — expect to pay more in hurricane-prone Florida and earthquake-prone areas of California — and other factors.

How Is Price Determined?

Many other factors influence the price a company may quote you, including the type of dwelling — whether it's a condo, single- or multi-family home, or a co-op — the age of the house, the square footage, the materials used, whether you have an alarm system, and its proximity to a body of water. Then there are the less obvious factors, such as the distance to a fire station and whether it is a volunteer or paid force, the interior design, whether there is a pool, and even whether you have a specific breed of dog.

“Insurance carriers use credit as an underlying factor as well,” says Nancy Costa, account executive at Masterson Insurance Agency, Inc. “The higher the rating tier, the better the credit. The deductibles and endorsements that each person selects will also have an impact on the price.”

Is Homeowners Insurance Worth the Cost?

While homeowners insurance is not required by law, your lender will most likely require it if you purchased your home with a mortgage. Having said that, homeowners insurance is an undeniably wise investment. It safeguards not only your most valuable asset, but also the place you call home.

Kevin Lang, president of Lang Insurance, is more direct. “If your house burns down, a pipe bursts in your living room, anything that could go wrong in your house,” he says. “Which would you rather pay if you have a half-million-dollar house that burns down and your insurance costs $3,000 per year?”

How Should You Choose a Provider?

Financial ratings from agencies such as A.M. Best Company, whose top score is A+, can help consumers choose an insurance carrier. There are also numerous consumer sites that rate businesses.

According to Albanese, “some insurance carriers distribute their policies directly to consumers or through their exclusive agents.” “Others use independent agencies, which can represent multiple insurance companies and provide consumers with quotes from multiple companies from a single source.”

You should also ask your friends and neighbors for recommendations for licensed agents in your area who can walk you through the right amount of coverage for your home and help you find the best price. Examine any quotes carefully to understand what the policy covers and what it does not (for example, many homeowners insurance policies do not cover floods).

“Make certain that you are not just getting the basics and that you are taking into account replacement costs, water backup and sump pump coverage, and equipment breakdown,” Costa advises. “Those are just a few of the important coverages that a policy may provide. You must exercise extreme caution at all times. Having someone you can rely on will make this search easier while also ensuring that you are properly protected at a reasonable price.”

Are Discounts Available?

Homeowners insurance premiums can vary from year to year, and there are numerous factors that can lower the cost. First-time home buyers, military veterans, and retirees are eligible for discounts. Premiums are reduced by installing an alarm system with video cameras, a fire sprinkler system, a backup generator, and a water leak detection/shut-off system. Home improvements, such as replacing the roof and upgrading the plumbing, heating, and electrical systems, can also help to cut costs. Install strong windows if you live in a hurricane-prone area, and retrofit your home to withstand earthquakes if you live in an earthquake-prone area.

“Discounts may be available for having a favorable claims history and having multiple policies with the same insurance carrier (for example, bundling homeowners and auto insurance),” Albanese says. “Finally, having a high deductible is a good way to keep the policy cost low. It is best to buy a broad policy with adequate coverage limits and to self-insure against smaller occurrences by choosing a higher deductible.”

Conclusion

Homeowners insurance costs can vary greatly depending on a variety of factors, including the state you live in and the location of your home. Choose a plan with a broad range of coverage so that you are not caught off guard in the event of a catastrophic event.