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Factors that affect homeowners insurance premiums

Fact-checked with HomeInsurance.com

If you’re shopping for homeowners insurance, you’re probably wondering how the insurance company determines your rate. Some people wrongly believe that home insurance is a flat rate. In fact, it’s just the opposite—home insurance premiums are personalized for every homeowner. 

In this article, we’re breaking down the different factors that affect your home insurance premium, and how you can save some money on your policy. 

What affects homeowners insurance premiums

Your homeowners insurance premium is simply the cost of your insurance policy. When you get a price quote, an insurance agent will look at some personal factors and details about your home to calculate a specific rate. Some factors are completely out of your control, and others you can change. Here are some of the factors that impact your home insurance premium.

State

Where you live has a significant impact on the cost of your homeowners insurance. For instance, the average homeowner in California pays $1,974 per year for insurance, but the average homeowner in Wisconsin pays $1,049 per year for insurance—almost $900 less. 

Your zip code also plays a role to a certain degree. Home insurance is more expensive in areas near the coastline because there is a higher risk of damage or destruction from flooding or hurricanes.

Credit score

Your credit score is another big factor that can impact your home insurance premium. People with poor credit scores are viewed as “high-risk,” meaning there’s a chance they could miss a payment or stop making the payments altogether. 

To compensate for that risk, insurance companies charge higher rates for people with bad credit. On the other hand, homeowners with a good credit score are often rewarded with a lower premium. 

Claims history

If you have filed insurance claims in the past, it will affect your home insurance premium. It doesn’t matter how big or small they were. For example, say you recently moved to a new state after your previous home burned down. When you go to purchase a new policy, the insurance company will know that you had a major fire claim with your last house, and that will cause your rate to increase.

Coverage amount

If you want to raise your policy’s coverage limits for added protection, it will cost extra. The more coverage you have, the more money you’ll pay for insurance. Think about it this way—if you raise your dwelling coverage limit to $1 million, there’s a chance your insurance company would have to pay you $1 million after a claim. To prepare for that potential payout, your provider charges you more money upfront. 

Condition of the home

Lastly, the age and condition of your home plays a role in your insurance rate. Insuring a new home is much more expensive than insuring a home that is older or outdated. When your house is outfitted with fancy appliances, brand new electrical systems, or smart home devices, it costs the insurance company a lot of money to replace those things if they get damaged. Older homes, on the other hand, are usually cheaper to fix, which means the cost of your insurance will be lower. 

Types of homeowners insurance policies

There are several types of homeowners insurance policies, and the type of policy you choose will impact your premium. Most home insurance policies include liability coverage, so the biggest difference is what type of coverage the policy offers for your dwelling and personal belongings. Here’s a look at the various policy types and what they cover:

Type of policyWhat it covers
HO-2Offers named peril coverage for your dwelling and personal belongings.
HO-3Offers open peril coverage for your dwelling and personal belongings.
HO-4Specifically covers rental properties. It offers named peril coverage for your personal belongings.
HO-5Best for high values properties. It offers open peril coverage for your dwelling and personal belongings, and includes replacement cost coverage.
HO-6Specifically covers condos. Usually covers the inside of your unit and your personal belongings with named peril coverage.
HO-7Specifically covers mobile and manufactured homes. It offers open peril coverage for your dwelling and personal belongings.
HO-8Best for high-risk homes that don’t qualify for standard coverage. It offers named peril coverage for your dwelling and personal belongings.

With named peril insurance, your home and belongings are covered from a specific list of events that can be found in your policy. Some common examples are fire, theft, vandalism, and wind storms. Named peril policies are the cheapest because they offer less coverage overall.

With open peril insurance, your home and belongings are covered by any event that is not explicitly excluded in your policy. Open peril policies are more expensive because you get more coverage. It’s important to note that you can upgrade from a named peril policy to an open peril policy if you want the added coverage.

How to determine the right homeowners insurance policy

Shopping for home insurance isn’t the most enjoyable activity, but you should put some time and consideration into the process. You want to find the right home insurance policy for your needs and your budget. Below are a few things to keep in mind as you’re shopping for home insurance. 

  • Shop around: Instead of settling on the first insurance company you find, find a few providers that sell coverage in your area. Read customer reviews, talk to an agent and check out the providers’ strength ratings.
  • Get multiple quotes: Most insurance companies have an online quote tool where you can plug in some basic information and get an instant rate. Spend some time getting quotes from several companies to compare prices based on the amount of coverage you need.
  • Research endorsements: If you want to fill gaps in your coverage, look into the endorsements that each company offers. For example, some companies offer an endorsement for replacement cost coverage, identity theft protection, sump pump overflow, home business coverage, and more.
  • Look at discounts: If you can take advantage of discounts, you could save a lot of money on your home insurance. As you’re researching providers, look at their discounts and pay attention to the ones you qualify for. 

Homeowner insurance discounts

One of the best ways to lower your home insurance premium is to use discounts. The savings vary by insurance company, but claiming one or two discounts could save you anywhere from 10-25 percent on your premium. Some common discounts include:

  • Being claims-free: If you haven’t filed an insurance claim within the last few years, you can probably get a lower premium. 
  • Having a home security device: Homes that have a security or anti-theft system usually qualify for a discount.
  • Paying your premium in full: Homeowners who pay their annual premium in full can get a lower rate.
  • Having a newer home: If your home was built within the last 10-15 years, you might be able to save money on your premium. 
  • Bundling your home and auto policy: Bundling your home and auto insurance with the same insurance company almost always comes with a small discount. 

The takeaway

  • Your home insurance premium is highly personalized.
  • Factors like your state, age, credit score, claims history, and the type of policy you have will impact your rate.
  • Taking advantage of discounts is one of the best ways to save money on your home insurance premium.

Before you start shopping for a home insurance policy, it’s beneficial to understand how insurance companies determine your rate. There are factors that contribute to your premium, some that you can control, and others that you can’t. However, getting stuck with an expensive insurance premium isn’t the end of the world. You can take advantage of discounts to save some money, or raise your deductible for a lower monthly rate.

Elizabeth Rivelli

Elizabeth is an insurance writer for coverage.com, where she covers insurance providers and reviews policies to help consumers find comprehensive and affordable coverage for every area of their life. She has more than three years of writing experience for top online insurance and finance publications.

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