How Much Is Homeowners Insurance?

Highlights

• Homeowners insurance typically costs between $378 to $3,593 per year with a national average cost of $1,383.
• Insurance companies determine costs using a number of factors, including the cost to rebuild the home, the deductible chosen by the policyholder, and the homeowner’s financial history.
• Homeowners insurance is required by most mortgage lenders, but even homeowners paying cash are advised to take out a policy to protect their investment.
• Policyholders can work with their insurance agent to lower their coverage cost by taking advantage of available discounts.

Most homeowners understand why they need homeowners insurance in order to get a mortgage. Lending a large sum of money is risky for a lender, and they need to know that the home is protected against certain events in case the borrower defaults and the lender needs to sell the home to recoup their loss. So what is homeowners insurance? In short, it is a policy that allows homeowners to protect their own investment as thoroughly as the lender protects theirs. Fabio Faschi, a licensed insurance agent in charge of partnerships with Counterpart, notes, “While many homeowners typically purchase homeowners insurance simply to check the box on the laundry list of items they need to complete to finalize a home purchase, it’s essential that they become comfortable with what their policy will and won’t cover.”

Purchasing a home is expensive, so it’s important for homeowners to save money where possible while still protecting this major investment. So how much does homeowners insurance cost? This depends on many factors, some of which are fixed, such as the age and condition of the home or the history of claims made on the home in the past. Others are up to the homeowner, such as how much coverage they need and choice of deductible. Some factors are determined by lifestyle choices: Owning a particular dog breed, conducting business from the home, and even marital status can affect the coverage cost. “All of these are factors that may require a more nuanced policy option, and your agent should be able to navigate based on the information you provide them,” says Faschi.

Factors in Calculating Homeowners Insurance Cost

Is the house close to a shoreline? A fault line? How is the homeowner’s credit? All of these are factors that will affect the cost of homeowners insurance. While the national average cost of homeowners insurance is $1,383 per year, the exact cost can vary widely by region and home value. It’s important for homeowners to consider the house’s style and location, and then the various optional factors, before seeking out a homeowners insurance quote. A homeowners insurance calculator can help homeowners account for each of these potential costs.

Home Replacement Cost

In the event of a complete home loss, the house will need to be rebuilt from the ground up. Homeowners insurance rates are largely based on the amount of money rebuilding will take. While the rebuild may include some improvements to ensure it meets current building codes, the replacement cost is the price of rebuilding a home that is similar in size, quality, and material to the home that was lost. This is not the same as the market value of the home, which includes the cost of the land, so insuring a home based on its market value will result in a higher premium than is necessary. Instead, homeowners are advised to work with an insurance agent to determine what it would cost to rebuild the house and use that number to scale the home replacement cost.

Age and Construction of the Home

Older homes cost more to repair than newly built ones, which can raise the cost of homeowners insurance. Replacing vintage floorboards and tiles, rebuilding plaster walls, and patching canvas ceilings all require specialists and costly materials, which insurers will see as increased costs in the event of a claim. In addition, the construction of an older home may not meet current building codes. By law, a home being repaired by a licensed contractor must be brought up to code, which can add thousands of dollars in materials and labor. Standard homeowners insurance policies do not cover that cost, but most companies will offer the opportunity to purchase a separate endorsement to cover the costs of code updates after the home is damaged by a covered peril.

Deductible

The deductible on a policy is one of the few things that’s possible to control when choosing a homeowners insurance policy. “Once your [coverage] is decided, the last consideration is what deductible (what you’ll pay out of pocket in the event of a claim) you’d like to set on the policy, knowing that deductibles will always have an inverse relationship with the price you pay annually for your insurance,” says Faschi. In other words, this is an opportunity for a homeowner to hedge saving money against the likelihood of making a claim in a given year.

If the house is in good shape and isn’t situated in a high-risk area, it may make sense for homeowners to choose a higher deductible in exchange for a lower premium. If the homeowner does need to make a claim, the money they didn’t pay toward the premium can help them meet their deductible. On the other hand, choosing to pay a higher premium to keep the deductible low means that in the event of a covered loss, the homeowner will have lower out-of-pocket expenses.

Dog Ownership and Dog Breed

Dog bites are at the root of a significant number of liability insurance claims, so insurers will ask homeowners if they own a dog. Unless the dog is on the insurer’s list of restricted breeds, the hike in the premium will likely be small. If the dog is considered an “aggressive” breed, such as a Doberman, rottweiler, or pit bull, the insurance company may not cover any damages or injuries the dog causes, or the homeowner may be required to purchase a separate rider on the policy at an additional cost. A homeowner whose dog may be considered an “aggressive” breed may want to ask potential insurance providers about whether there are any limitations or restrictions on certain dog breeds to make sure the company’s policy will provide the coverage they require and won’t exclude damages or injuries caused by their pet.

Wood-Burning Stoves

Wood stoves can be an economical and energy-efficient way to heat a home. But they’re also essentially a box of fire sitting in the middle of the house, burning all day and night. Insurers view them as a huge risk and will typically raise insurance costs as a result. It’s possible to offset this increase with some companies by installing smoke detectors near the wood stove and providing evidence that the stove was installed by a licensed contractor and is regularly maintained.

Home-Based Business

Basic homeowners insurance policies do not cover the equipment and supplies that are kept in a home and used for a home-based business, but that equipment will still need to be protected. Most insurers offer the option of purchasing a business endorsement to add to the home insurance policy. Another option is to purchase a completely separate business policy. Either will provide good protection, but both will increase the overall insurance cost. Depending on the type of business, it may be possible for homeowners to claim the cost of the insurance on their taxes if the space is defined as a home office. Homeowners may want to consult a tax professional or financial adviser to determine whether they are eligible for any tax deductions for this expense.

Remodeling

Sometimes a remodel comes with the added benefit of a lower insurance premium. Updates and upgrades to electrical or plumbing systems reduce the likelihood of damage resulting from fires and leaks and increase the value of the home, and the insurer may reward the homeowner for that. Bringing other aspects of the home up to code, such as outdoor steps and railings for decks, reduces the liability risk of someone being injured in a fall and may therefore reduce the cost of the policy.

Home Liability Limit

Liability coverage, which is a standard component of all homeowners insurance policies, pays for injuries or property damage that the homeowner (or the homeowner’s family members or pets) is legally responsible for. The coverage includes the cost of a defense in court and fines or payouts demanded by the court following a lawsuit. Homeowners will have to make a decision about the limits they choose for their coverage: a higher limit will result in a higher premium, but coverage will also increase. Most policies have a minimum coverage limit of $100,000, but most insurers recommend a limit of $300,000 to $500,000. If the homeowner has a lot of personal assets that someone suing them might try to take, it may be wise to set the limit even higher, but each increase in the limit also drives up the insurance cost.

Insurance Score

An insurance score is a combination of credit score and history of insurance claims. Unlike a credit score, it weighs bankruptcies, liens, and total debt higher than the timeliness of payments and number of accounts. This is because those elements statistically make it more likely that a homeowner will file an insurance claim, either because they can’t leverage their own credit further to pay for maintenance work or because they have a history of letting problems go unaddressed. Companies formulate scores differently, but in general homeowners can raise their scores by paying off debt, carrying modest credit card balances (ideally paying them off monthly or making the minimum payments on time), and handling their finances to avoid tax liens or judgments against their salary. In addition, homeowners will want to consider when it’s worth making a claim on insurance policies; submitting numerous claims for smaller losses can lower their insurance score.

Marital Status

Married couples are statistically less likely to file homeowners insurance claims than single people, so a homeowner’s marital status may have an effect on the cost of their insurance premium. Since insurance companies save money when they don’t have to pay out claims, they will sometimes offer married couples lower premiums because of this assumed lower risk.

Hot Tubs, Swimming Pools, or Outdoor Spas

Water features can turn a yard into a private oasis to help homeowners get away from the world—but they are outdoors, which increases the possibility of damage during storms or acts of vandalism. As a result, coverage costs may rise. Also, because they’re water features, there is a greater possibility of injury from drowning, so some insurers may require higher liability limits for homes that have a hot tub, pool, or spa.

Roof Condition

One assessment homeowners insurance companies will make before providing a quote on a policy is the age and condition of the roof. According to Faschi, “The property risk is the structure and building itself, which includes factors that speak to the condition of the house, such as the aging of the four major household components: roof, electric, plumbing, and heating.” The roof is the first layer of defense against many of the threats to the home. A newer roof in good condition provides protection against wind damage, water infiltration, and ice dams, and it offers a better shield against falling tree limbs and hail. An older roof, especially if the flashing is aging and the shingles are showing their age, is more likely to leak during driving rain, which can lead to damaged property, rot, and mold. Because of this, homeowners insurance companies will typically charge a lower rate for a home that has a newer roof.

Home Security Features

Some companies offer insurance discounts for having a security system. Insurers may ask questions about the types of locks on the doors and the materials the doors are made of to determine how easy it might be to break into the home, so investing in a new high-security deadbolt or replacing old hollow-core doors can take money off the premium. In addition, installing a monitored security system can result in a premium reduction of up to 20 percent. Before choosing a system, homeowners will want to check with their insurer to see what the company’s restrictions are regarding what kinds of systems earn the discounts. Some companies require fully monitored security systems, while others simply require a Wi-Fi system with self-monitoring. The savings on the insurance premium can significantly offset or even cover the cost of the security system, so there are two benefits for one cost.

Proximity to a Fire Station

If a home is close to a fire station, first responders will arrive quickly in case of a fire and can contain and extinguish the fire swiftly and efficiently, reducing damage and reducing the costs of cleanup. As a result, premiums may be lowered in recognition of the reduced risk. On the other hand, if the house is in a rural area (especially if there isn’t a municipal water source and there are no fire hydrants), the likelihood that firefighters will be able to extinguish a fire is reduced, so insurers will likely respond with a higher rate.

Proximity to Coastline or Body of Water

Coastal homes are beautiful and relaxing, but they come with added risk: Any body of water is a flood threat. Whether it’s a picturesque stream, a serene lake, or an ocean just out the back door, proximity to water will jack up insurance rates.

Standard homeowners insurance does not cover damage from floods. As a result, if a home is close to water, a mortgage company may require that a homeowner purchase a separate flood insurance policy from the Federal Emergency Management Agency (FEMA). Even if the home isn’t in a waterfront or low-lying area, flood insurance can be a good investment if the water tables in the area are high. Coastal areas are also more exposed to strong, damaging winds, and salt spray can cause steel and wood to age faster and fail sooner, so those risks also produce higher insurance rates.

Credit History

Anyone who is in the process of purchasing a home is intimately familiar with the effect their credit score has on interest rates and fees. Credit score may also impact a homeowners insurance policy premium. Homeowners with lower credit scores may have to pay more simply because the insurance company regards them as a bigger risk; while this is not necessarily true, it’s a fact of the insurance market. Those with higher credit scores may pay less for their insurance coverage.

Claims History

For insurers, the ideal customer pays on time every year and never makes a claim. This is how insurance companies make money. They understand, of course, that sometimes claims must be filed and won’t necessarily hold that against policyholders. However, homeowners who file claims frequently may find that lower rates are not available. Insurers will need to assess a customer’s profile risk in order to make these decisions. “The profile risk can be understood as the risk factors that are particular to the individual purchasing the insurance,” says Faschi. “So in the case of John Doe, [this would be] his previous history of being insured (or not), how often he filed claims, and usually an aggregated ‘insurance score,’ which is often a proprietary score assigned by the insuring company based on the soft credit history [check] of the homeowner.”

If the policyholder purchased a new-to-them house and there have been many claims filed in the past on that house, this can also result in an upcharge. Especially damaging are multiple claims of the same type. Rates won’t be enormously affected by one weather claim, because that’s what homeowners insurance is for. A fire claim will have a slightly larger effect, but a second fire claim (or second or third theft claim) suggests to the insurer that the homeowner isn’t using appropriate safety precautions and is at a higher risk for future claims.

Attractive Nuisances

Features like swimming pools can add value to a home, but they can also increase insurance rates. Unless a home’s yard is fully fenced—and sometimes even then—those features can be classified as “attractive nuisances.” If an unattended child could be drawn to something dangerous on the property, that poses a risk. Because the homeowner won’t necessarily know this is happening, injury is more likely to occur, so it’s wise to increase liability coverage to be safe. Some examples of attractive nuisances include:

• Trampolines
• Treehouses
• Swing sets
• Swimming pools
• Ponds
• Discarded appliances
• Cars

Policy Add-Ons

In the event that a base homeowners insurance policy does not provide sufficient coverage, homeowners can choose to include policy add-ons. For example, homeowners with a significant net worth, who host a lot of large gatherings, who are landlords, or who have a new driver in their household who could cause an accident for which they could be held liable, may opt for an umbrella policy, which can serve as an additional layer of protection against liability claims.

Beyond whole-policy add-ons, though, there are endorsements and line-item additions that can drive rates higher. All of these additions have a cost, so making informed decisions about what is covered, what needs to be covered, and what the coverage limit needs to be will be useful in determining the best balance.

• Flood insurance
• Earthquake insurance
• Home business insurance
• Umbrella policies
• Animal liability protection
• Service line coverage
• Personal property insurance
• Identity theft coverage

State of Residence

The location of a home can make a significant difference in policy cost. According to Faschi, “[Property risk] also considers the location of the property and risk frequency within that area, such as earthquake, wildfire, or hurricane activity in general for the area, but also specifically any incidents or claims that involved the property being insured.”

Sometimes the threat of crime or vandalism is assessed on a state basis as well. To protect their own coffers in the event of a natural disaster, several states have their own insurance guidelines that determine how much coverage homeowners must carry, and those regulations will fold into the costs as well.

Finally, if the home is located in a state that is far from where building materials are produced, those materials will cost more for a repair or rebuild. Insurers know that and cover their own increased costs with higher rates. The following are some examples of homeowners insurance costs by state.

• Arizona: $1,216
• California: $1,084
• Colorado: $1,863
• Florida: $1,648
• Georgia: $1,373
• New York: $1,289
• Ohio: $1,119
• Texas: $1,860
• Virginia: $924
• Wisconsin: $928

Insurance Provider

As with any other provider, contractor, or lender, it is critical for customers to do some background research. Just because their lender or real estate agent offers them the names of a few insurance companies doesn’t mean those companies will be a good fit. Homeowners can ask friends and family for recommendations, shop around online, make phone calls, ask for quotes, and check the business records of companies they’re considering. The cost of the same policy through different insurers can vary significantly, so homeowners will want to make sure they’re not overpaying by choosing stable, established insurers and getting at least three home insurance quotes.

Types of Homeowners Insurance Policies

There are eight types of homeowners insurance, each including a particular level of coverage. This simplifies the process of shopping for a policy; once the homeowner knows the base form that they’re looking for, they can determine what add-ons are needed and then communicate that to an agent.

There are two types of coverage here: named peril and open peril.

• Named-peril coverage is limited to the specific perils listed in the policy, with any other perils excluded.
• Open peril coverage is the opposite; all perils are covered unless they are specifically listed as exclusions.

It’s important for homeowners to read all of the plan documents carefully and ask their insurer for clarification before signing.

HO-1 – Basic Form

This is a truly simplified, basic form of coverage. It is named-peril coverage that includes only the perils listed, which are fire, theft, and vandalism. No other perils are covered. In addition, there is no liability coverage. It is a relatively cheap homeowners insurance plan and is not commonly offered by most major insurance companies.

HO-2 – Broad Form

Broad form coverage, like the basic form HO-1, only covers named perils. Fire, theft, and vandalism are joined by coverage of detached structures, personal property coverage, and additional living expenses during a repair. A limited amount of liability coverage is included.

HO-3 – Special Form

The most common type of homeowners insurance, HO-3 policies cover the physical structure of a home from anything that is not specifically excluded. This is a shift from HO-1 and HO-2 policies, which only cover what’s listed: HO-3 is open-peril insurance that covers everything except noted exclusions.

HO-4 – Contents Broad Form

HO-4 is also known as renters insurance. It is named-peril coverage for such things as theft, fire, vandalism, and explosions; coverage for additional living expenses during a repair if the home is uninhabitable; liability coverage; and medical payments. However, it is focused on personal property, and this policy does not cover the structure of the building.

HO-5 – Comprehensive Form

The most comprehensive coverage option, HO-5 covers everything that is not explicitly excluded in the policy. It includes coverage for all perils that are not named as exclusions (such as damage caused by neglect) for the policyholder’s dwelling, outbuildings, and personal property.

HO-6 – Unit-owners Form

Aimed at condominium owners, who have different needs from both homeowners and renters, HO-6 provides named-peril coverage for damage to the interior of the condo, personal property, personal liability, and guest medical payments, along with loss of use and additional living expenses, but it does not cover the structure of the building.

HO-7 – Mobile Home Form

HO-7 is similar to HO-5 in that it is open-peril coverage of all perils not excluded for the dwelling itself and personal belongings. It has a different set of parameters, however, as it’s intended for mobile-home dwellers and includes coverage that is specific to manufactured and mobile homes.

HO-8 – Modified Coverage Form

Sometimes a home will be declined for homeowners coverage because it’s too high-risk. HO-8 coverage will list the specific perils that are covered and provide peril coverage only for the homeowner’s dwelling and personal items. Because it’s aimed specifically at homes that don’t qualify for traditional coverage, policyholders can expect to pay extra for this option.

Do I Need Homeowners Insurance?

To put it simply, yes. First, if a homeowner has a mortgage, lenders will most likely require them to carry homeowners insurance, possibly even as part of their mortgage payment. In this case the mortgage company pays the insurance premium each year to make sure that the coverage doesn’t lapse and is sufficient to protect their investment. From the borrower’s end, that’s one less bill to pay, but it also means that it’s easy to forget to review coverage periodically.

The real question is how much homeowners insurance the homeowner needs. Even without a mortgage, a home and yard that are uninsured are like an invitation for bankruptcy and financial ruin. It’s great to have an emergency fund for unexpected repairs and upkeep, but most people do not have the resources to pay out of pocket for a home that is destroyed by fire or a tornado—especially considering the cost of the planning, permits, teardown and haul away of the former home, materials, furnishings, and all of the personal property that was lost, along with the cost to live somewhere else for months while the rebuild is completed. A home equity line of credit is a great safeguard, but when the home itself is lost, that’s no longer an option. Homeowners insurance is a fundamental, unambiguous need for homeowners. When shopping for a homeowners policy, homeowners may want to consider one of the best homeowners insurance companies like Lemonade or Allstate.

How to Save Money on Homeowners Insurance Cost

Ideally, homeowners will find a low-cost homeowners insurance policy that still meets their coverage needs. “In general, I wouldn’t consider home insurance as an item that can be discounted, but rather it returns to understanding the factors that influence your final pricing,” says Faschi. The cost of homeowners insurance can be remarkably flexible based on what is being insured, and there are several ways to lower homeowners insurance rates by making a few smart decisions.

• Raise the deductible. It may cost a little more if the homeowner needs to make a claim, but they’ll be reducing the money flowing out each month. The homeowner will want to make sure they have a sufficient emergency savings fund to cover the higher deductible
• Take care of small repairs. Homeowners may be able to tackle minor home repairs themselves rather than filing a claim, especially if the total cost will be lower than their deductible. This can save them money, even if they’re hiring a professional to complete the repair.
• Ask the insurer about discounts. Homeowners won’t always be aware of the available discounts, which could be offered for first-time home buyers, homeowners who choose paperless billing, and newly constructed homes. The insurance agent will be able to advise the homeowner on which discounts they may be eligible for.
• Add a security system. Homeowners insurance providers often give policyholders a discount for having a security system installed. The exact discount will vary among insurers, as will the specific requirements, so it’s advisable for homeowners to ask for details before choosing a security system if budget is a concern.
• Ask about bundling. Policyholders may be able to choose one of the best home and auto insurance bundles. Often, bundling discounts are available for multiple types of insurance, such as homeowners insurance with umbrella or boat insurance.
• Shop around. Collect at least three house insurance quotes to compare coverage and cost. Ideally, homeowners will want to request quotes from each insurer on the same day using the same information (such as policy limit and deductible).

“The other major ways to achieve a better price include investing in the condition of the property itself, such as renovating its roof or other household systems. Naturally, while this will save you money on your home insurance, the cost of the renovations themselves can’t be ignored,” Faschi adds.

Questions to Ask About Homeowners Insurance

Once homeowners are familiar with the ins and outs of homeowners insurance policies, it will be clear what specific questions they need to ask their insurance agent to make sure that they’re getting adequate coverage at the best rate. Some important questions to remember to ask include the following.

• What does your standard policy cover?
• Does the location of my home require flood insurance? Based on claims in my area, should I purchase it even if it’s not required?
• Based on the age of my home, do I need to consider sewer coverage?
• Based on my home and lifestyle, how much liability insurance do I need?
• How often do you reassess the rate for my policy?
• Will I need a home inspection or appraisal in order to buy a policy? Is that appraisal free if I buy the policy?
• What are the policy limits? Are the limits per claim, per event, per year, or overall?

FAQs

There are many components that make up a typical homeowners insurance cost, and the number of distinctions and bits and pieces can make it difficult to even get started. But it’s critical for homeowners to ask questions and get the coverage they need to protect their home. Here are some of the most common questions about homeowners insurance and their answers.

Q. How much on average is homeowners insurance?

The national average is $378 to $3,593 per year, but this will vary considerably based on location, the size and specifics of the home, and how much coverage is chosen.

Q. How much is homeowners insurance on a $200,000 house?

The insurance value will likely be based on the replacement cost of the home, which is different from the market value (the market value includes the value of the land). Homeowners will need to insure at least 80 percent of the value of their home. An average cost for insurance on a $250,000 home would be $1,383 per year, so the cost for a $200,000 home would likely be a little less than that, depending on the area where the home is located and other factors.

Q. How is homeowners insurance calculated?

Homeowners insurance includes dwelling coverage (the structure of the home and nearby structures), personal property (the items inside the home), liability coverage (which protects the homeowner if they or their family members or pets are found legally responsible for injuries or damages to a third party) and medical payments coverage (which helps pay for medical expenses up to a set limit for injuries to guests, regardless of fault), and additional living expenses (the cost of living elsewhere while a repair for a covered loss is completed). Homeowners will select coverage limits for those parts of the policy, then add any extra coverage based on their home and lifestyle. The costs will be balanced against the homeowner’s credit score, insurance score, and any other risks or safeguards they have in place. Once the total cost has been calculated, homeowners can balance the monthly cost by choosing a higher or lower deductible. A higher deductible typically means a lower premium, which can help policyholders save in the short term but will offer less coverage if the homeowner makes a claim. On the flip side, a policy with a lower deductible has a higher premium, so policyholders will pay more out of pocket for coverage but will have more of the repairs covered if they make a claim. A homeowners insurance cost estimator can be useful in getting an idea of the general cost.

Q. How can I make sure I’m getting the best homeowners insurance rate?

Staying on top of home insurance rates is an ongoing task that involves taking stock of any risk changes each year. Faschi advises, “It’s always a good idea to reshop your homeowners insurance annually and even review it alongside your other personal lines of insurance such as car, personal articles, such as jewelry or a specific item, or even the insurance of other properties you may own.” Homeowners may be able to save money on their insurance premiums by removing unneeded coverage or taking advantage of discounts available to them.

Sources: Bankrate