What Factors Affect Your Home Insurance Cost?

It's no secret that home insurance costs are rising, in large part due to increased claims from floods or other natural disasters. Prices are also increasing due to industry consolidation and disruption as insurance companies exit whole markets. You'll need to check your policy more frequently to ensure you get a good deal and enough coverage. 

Home insurance costs on the rise

The average home insurance premium hit a record-high $1,311 in 2020, the most recent data available from the National Association of Insurance Commissioners. But premiums can vary widely, since many elements affect the cost of home insurance, with some homeowners paying more than quadruple the national average.

Here are eight factors that can impact your home insurance rates. 

Homes in high-risk areas typically have higher premiums. Insurance companies assess the risk associated with your area by looking at the likelihood of severe weather, such as floods, wildfires, and hurricanes, local crime rates, and your home’s proximity to a fire station. Some insurance providers even factor in your house’s distance to the nearest fire hydrant — homes less than 100 feet away may qualify for lower insurance rates. According to Insurance.com data, tornado-prone Oklahoma is the most expensive state for home insurance, with an average annual premium of $5,317.  

The level of coverage you choose plays a key role in determining your premium. Generally, there are three types of coverage: dwelling coverage (protects your home's structure), personal property coverage (protects your belongings), and liability coverage (covers legal expenses if someone is injured on your property). The more extensive your coverage, the higher your premium will be. 

A deductible is how much you’re required to pay out of pocket in the event of a loss before your insurance coverage kicks in. Typically, home insurance deductibles range anywhere from $250 to $5,000. Increasing your policy’s deductible can lower your premium substantially. According to ValuePenguin, raising a deductible from $500 to $1,000 decreases a policyholder’s premium by 6% on average. But make sure you have enough money to cover the higher deductible amount before amending your policy.  

The age and condition of your home can significantly affect your premium. It boils down to risk: For example, a newer roof provides better protection for your home against the elements than an older roof. As a result, newer, well-maintained homes are often considered less risky to insure and may be eligible for lower premiums. If you think you will save money by delaying home repairs, think again, as your premium may increase following a claim involving poor condition.

Investing in home security protections, such as alarm systems, professional monitoring, and deadbolt locks, can lead to lower premiums, since these features reduce the risk of theft or damage, making your home less of an insurance liability. The savings can be significant: Homeowners with a security system pay $100 less, on average, for their home insurance premiums than those that don't have one, according to Policygenius, an insurance marketplace.  

Your personal claims history can also affect your premium. If you've made multiple home insurance claims in the past, insurance companies may view you as a higher risk and decide to charge a higher premium. Typically, home insurance claims stay on your Comprehensive Loss Underwriting Exchange (CLUE) report — the most commonly used claims record — for seven years, according to WalletHub. Some insurance providers allow customers to file a certain number of claims (or claims up to a certain dollar amount) without a rate increase. In contrast, others will raise a customer’s increase premiums by as much as 10% after a single claim, Policygenius says. 

Some insurers use your credit score or credit history report to assess your risk as a policyholder. Consumers with higher credit scores may be eligible for lower premiums. However, a few states — California, Maryland, and Massachusetts — prevent insurance companies from using your credit information to determine your insurance rate. (Note: Requesting a home insurance quote does not typically affect your credit score, since most companies use “soft inquiries” to review your credit history.) 

Many insurance companies offer discounts that can lower your premium. These may include discounts for bundling your home and auto insurance, paying your premiums for a year upfront, enrolling in automatic billing, members of the military, and seniors. Some insurers even offer discounts to customers who sign up for paperless billing. So, ask your insurance agent what discounts the company offers.  

The bottom line

A variety of factors can affect your home insurance costs. And because home insurance rates can vary from lender to lender, shopping around once a year may save you hundreds of dollars.