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How Much Does Homeowner’s Insurance Cost?

How Much Does Homeowner’s Insurance Cost?

Homeowner’s Insurance is generally a good value, with insurance companies making modest profits in most years, and periodically having years where they suffer significant losses due to large (generally weather related) catastrophic events.   A foundational principle of insurance is sharing the losses of the few with the many. and it works well in Homeowner’s Insurance.

Your Homeowner’s Insurance premium could be as little as several hundred dollars, or as much as many thousands of dollars. Per the Insurance Information Institute, the average premium for Homeowner’s Insurance across the U.S. is now over $1,000, with Florida being the highest (at over $2,000) and Delaware being the lowest. It is important to shop around, working with a professional insurance agent, and it is also important to understand that you get what you pay for .   Many consumers assume that all insurance policies are alike.   When it comes to Homeowner’s Insurance, this is definitely not the case.

In addition to the quality of coverage varying tremendously between insurers, there are a host of optional coverages available that are tailored to the individual needs and exposures of specific consumers.   You should start by determining what your exposures are and pricing out coverage alternatives.   If the price of insurance is more than you can afford, or more than you wish to pay, you can explore higher deductibles or self insuring some smaller property exposures.   One risk management principle to keep in mind – never risk a lot to save a little. Prioritize your coverage needs and, if you have to choose, address the most important exposures first.

According to the Insurance Information Institute, over 80% of Homeowner’s Insurance property loss dollars arise from Fire, Lightning, Wind, Hail, Water Damage, Freezing and related debris removal costs. Keep this in mind if you are in a position where you have to choose what coverages you can afford to purchase. (Click here for a link to the Insurance Information Institute)

So What Factors Impact The Price Of My Homowner’s Insurance?

Insurers set their rates based upon predicted loss costs per unit of exposure. The unit of exposure is usually the replacement value of your insured property.   Accordingly, insuring a home with a replacement value of $300,000 will generally be much more expensive than insuring a home with an $85,000 replacement value.   All else being equal, the higher the replacement value of your home, the more your insurance premiums will be.

In determining your premium, insurers also look at individual risk characteristics that drive loss costs, some of which are completely out of your control.   These include factors like:

  • How far you are from the fire department, the quality of that fire department, and how far you are from the closest fire hydrant;
  • How prevalent severe winds and hail are in your area;
  • How prevalent freezing and ice damming are in your area;
  • The likelihood of

    a hurricane at your location;

  • Crime rates in your neighborhood;
  • The age of your home;
  • Whether you have a swimming pool;
  • The prior loss history you have had;
  • The type of heating you have in your home;
  • The presence or lack of fireplaces and wood burning stoves;
  • The age of your home’s mechanicals (electrical, plumbing, HVAC).

Other factors used by insurers in determining pricing may be more within your control:

  • The size of the loss deductible that you select – the higher the deductible, the lower the premium;
  • Presence of an alarm system, the type of alarm system, and whether it is central station monitored;
  • Whether you have a trampoline or other playground equipment;
  • The age and type of your roof;
  • The quality of your credit history (click here for more information on use of credit history in pricing insurance);
  • How far in advance of the Homeowner’s Insurance policy effective date you get your quote (some insurers offer a discount to consumers who shop in advance of their expiration date);
  • A “pre-pay” or “paid in full” discount for customers who pay their full premium up front;
  • An “ACH credit” for customers who sign up for automatic payment through automatic deduction from their checking account;
  • A “package discount” for buying your automobile insurance through the same insurer where you buy your Homeowner’s Insurance;
  • Education based discounts, available to consumers who have attained a particular degree;
  • Affinity discounts for being a member of a particular group.   Insurers may determine that members of a particular group perform better and may offer discounts for being a member of that group. Ask your insurance agent about potential affinity group discounts:
    • AAA;
    • AARP;
    • Active or Retired Government Worker;
    • Active or Retired Military;
    • Occupation based affinity discount: teachers, doctors, and various others;
    • Graduates of particular colleges;

Work with a professional insurance agent to help identify your exposures, determine your needs, and explore available coverage options.   Pick a deductible option that is right for you.   If you have to make choices on what coverages you can afford to purchase, remember the risk management principle: never risk a lot to save a little.

For more information on shopping for Homeowner’s Insurance, click here for a related article on Getting A Homeowner’s Insurance Quote.

This short article provides only a summary of the topics covered. The information contained herein may not be accurate or appropriate for every consumer or for every situation. Before making an insurance purchasing decision, you should consult a professional insurance agent to discuss your exposures and coverage needs.   It also is important that you read your insurance policies, as doing so will often make you aware of important conditions, exclusions, or restrictions.

Category: Insurance

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