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The Average Cost of Home Insurance
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When it comes to buying insurance on a house, there are several factors that determine how much you’ll pay. Some of these conditions include:
- The state you live in
- The age of your home
- The value of the land
- And your credit score
However, there are ways that homeowners can save money on their insurance costs. Let’s look at the different types of home insurance options available and discuss how homeowners can calculate their estimated insurance cost.
[ Read: Home Insurance Quotes, Explained ]
Average home insurance cost by state
The current average cost of homeowners insurance in the United States is $1,211, according to data from NAIC. But homeowners insurance rates vary greatly by state due to regional risks like hurricanes and fires. Here’s a look at average homeowners insurance premiums in every state, based on data sourced from NAIC.
*The typical homeowner’s insurance policy is for 12 months of coverage. There is limited data available for home insurance rates based on 6-months of coverage. Thus, the averages for 6-month premiums are calculated using 50% of the annual premium, plus an averaged installment fee of $6.50/mo (fractions rounded up).
Most expensive states
- Louisiana: $1,968
- Florida: $1,951
- Texas: $1,893
- Oklahoma: $1,885
- Kansas: $1,584
Least expensive states
- Wisconsin: $779
- Nevada: $755
- Idaho: $730
- Utah: $692
- Oregon: $677
What determines the cost of homeowners insurance?
The cost of an individual homeowners insurance policy is determined by a wide range of factors. Some of those factors are within your control, and some of them are not.
For instance, home insurance is more expensive in areas with a high risk of flooding or fires than in places where natural disasters are uncommon. Newer homes cost less to insure than older dwellings— especially those in need of repairs. Insurance companies also look at your personal credit history before covering your home, so people with good credit histories could receive a lower premium than those with poor credit histories.
Every insurance company calculates rates differently. Some carriers place a higher value on credit score and claims history, while others look more closely at the condition and age of the home. Below is a more comprehensive list of the considerations that determine your homeowners insurance premium.
[ Read: The Best Homeowners Insurance Companies ]
- State, city and neighborhood: some states are more prone to wildfires, earthquakes, and hurricanes than others.
- Location of home: this information is pulled for crime and claim statistics in your home’s area.
- Construction of the home: is the home made out of wood, brick, or vinyl siding.
- Heating system: is the home heated with an HVAC or wood stove?
- Security system: homes with security systems are less likely to be broken into.
- Previous claims on the home: If the home has a history of water and electrical issues, then it is more likely the homeowner will file a future claim.
- Homeowners previous claims: if the homeowner has a history with other insurance companies, he or she will likely file a claim again in the not so distant future.
- Credit score: people with low credit scores are more likely to file a claim.
- Nearest fire station: the farther away your home is from a fire station, the more likely it is to be completely destroyed in the event of a fire.
- Marital status: married couples are statistically less likely to file claims with insurance companies.
- Replacement cost: the cost to replace an older home and bring it up to code is often more expensive than replacing a new home.
- Pets: certain animals are more likely to be violent than others.
- Outside structures: things like pools, sheds or greenhouses can also affect your policy rate.
Aside from these factors, the cost of an individual policy will also be determined by which features you chose to include in your coverage. A few of the options that affect the cost are:
- Deductible amount
- Extra coverage add-ons
- Bundled insurance policies
How deductibles can lower the cost of insurance
How can I estimate my home insurance cost?
Start by finding the value of your home, keeping in mind that the amount will be lower than the price you purchased the home for. Consult with a realtor, building contractor or appraisal consultant to get an accurate estimate. Next, conduct a home inventory to determine the worth of your personal possessions. Before choosing a policy, decide if you want to insure your home and possessions for replacement value (which doesn’t consider depreciation) or cash value (which considers depreciation).
[ More: Complete Guide to Home Insurance ]
Types of coverage
There are many different types of homeowners insurance coverage. Some coverages, like dwelling and liability coverage, come standard with most policies. But insurance companies also sell add-on policies that offer protection in certain areas. Here are some of the most common home insurance coverages you’ll find:
- Dwelling coverage is insurance that covers any damages to the home itself. If the siding of your home tore off in a major storm, dwelling insurance would cover the cost of repairs. Most insurance companies sell add-ons for roof damage, water back/sump pump overflow, flood insurance and earthquake insurance.
- Personal property coverage pertains to the cost of replacing possessions in your home, such as jewelry and furniture. If someone broke into your home and stole personal items, personal property coverage would help you replace them. If you need to protect valuables, you can purchase a scheduled personal property endorsement for higher coverage limits.
- Personal liability coverage protects against lawsuits for property damage or injury. If a delivery driver slipped and fell on your icy driveway, liability coverage would pay for their medical expenses and court costs if they sued you. Some insurance companies offer add-on policies that extend your liability coverage limits.
- Loss of use coverage covers any additional living expenses you have after your home has been damaged. This includes any additional money you pay for hotel stays, groceries, and gas while your home is being repaired. If your house is under construction after a covered claim, loss of use coverage would pay for your temporary hotel and food expenses up to your policy’s limit.
As you can tell, there are a number of home insurance coverage options you can choose from. But if you’re purchasing home insurance for the first time, it can be difficult to determine which coverage options you really need. Generally speaking, your home insurance coverages should be based on your lifestyle, where you live, and the value of your assets.
For example, someone living in Nevada probably doesn’t need hurricane insurance, but they will benefit from earthquake insurance. If you keep a lot of valuables in your home, it pays to have scheduled personal property coverage, as well as replacement cost coverage. Someone who has a dog should consider having pet insurance, but a non-pet owner can skip that coverage.
Keep in mind that you can also add coverage as time goes on. If you adopt a puppy six months after you purchase your home insurance policy, you can easily add pet coverage when the time comes. Or, if you take on a remote job, you can contact your insurance company and add home business coverage for a small fee.
Every home insurance coverage has a policy limit. A policy limit is the highest amount of money your insurance company will give you after a covered loss. For example, if your dwelling coverage limit is $400,000, you’re only eligible to receive $400,000 if your home is damaged or destroyed by a covered peril. If you wanted to rebuild your home for $500,000, you would have to pay the remaining $100,000 out of pocket.
When you purchase a home insurance policy, you can typically set your own policy limits. As a rule of thumb, you should have enough dwelling coverage to rebuild your home in its current state, enough personal property coverage to cover the full value of your personal items and enough liability coverage to protect your personal assets. Most insurers will automatically set your loss of use coverage limit.
[ Read: What is Dwelling Insurance? ]
Reimbursement coverage types
If your home needs to be replaced, there are three different coverage options commonly provided by home insurance companies. Each option affects your premium differently.
- Actual cash value (ACV) is based on the current market value, or how much your home and personal property is worth, with depreciation factored in. Most home insurance policies offer ACV reimbursement by default because it’s the cheapest option. If you want the lowest insurance premium possible and your home isn’t worth that much, an ACV policy is a good option.
- Replacement cost value (RCV) works in the same way as ACV, but without depreciation factored in. That means you get a higher payout after a covered claim. RCV home insurance policies are more expensive than ACV policies, and you may need to purchase an endorsement to get it. For people who want the most protection possible and own valuables or have an expensive home, RCV is a great choice.
- Guaranteed replacement cost (GRC) is also referred to as extended replacement cost (ERC), and this option covers the complete cost of rebuilding the home, even if that cost exceeds the policy limit. GRC is the most expensive replacement cost type, and not all insurance companies offer it. It’s the gold standard replacement cost and is also the most expensive option. GRC may be a good option for homeowners who live in areas with extreme weather, wildfires, earthquakes or any place where home destruction is more likely.
How much insurance do you need?
The amount of insurance you should buy for your house will greatly depend on the home. As a general rule, you should start by considering the cost of rebuilding the home if it’s completely destroyed—which may be more or less than the home’s current market price.
If the home is older, it might not be compliant with newer building codes, and that means you could have to shell out more money to rebuild. Consider local construction costs and the value of the personal items within the home.
Before selecting a policy, conduct a home inventory to determine how much your personal possessions are worth. This will help to determine how much insurance you will need, and it will also provide a record of your possessions if your home gets damaged or destroyed.
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Home insurance coverage limit: How much do you need?
The simple answer is as much as you can comfortably afford. The minimum for liability is $100,000, but you should aim for $300,000 or greater if you can. The reason is that you never know what could happen at your home. It could be something as simple as someone slipping on your front porch or your dog nipping someone’s ankle as they walked by. Any ‘accident’ that happens at your home could potentially lead you to a legal dispute and medical bills. None of these things can be foreseen, so it’s best to be prepared.
As far as dwelling coverage is concerned (the part of your policy that repairs your home if it’s damaged by a covered policy): you will want to base whatever amount you purchase on the actual replacement cost of your home. Be aware that if you have an older home, then it may cost more to get it up to code with today’s building standards. Also, know that whatever you choose will affect other coverage limits.
For example, an other structures policy is typically 10% of whatever dwelling coverage you have. This means that if you purchase $400,000 in dwelling coverage, your other structures limit will be $40,000.
Discounts and ways to save on home insurance
Homeowners insurance can be costly, so before selecting a plan, shop around to find the best deal based on your needs. It can be helpful to consult an insurance agent, read consumer reviews and check online insurance quotes to find companies with the lowest rates. Here are some other ways to save money on home insurance:
- Ask about available discounts: Some companies offer discounted policy rates if you’re over a certain age, if your home is in a gated community, if you bundle with your car insurance or if you’re part of a homeowner’s association.
- Bundle your insurance policies: Oftentimes, companies that sell home, auto and life coverage will deduct up to 15% off your premium if you buy two or more policies from them.
- Make your home safer: Some providers offer a discount if you install fixtures that make your home safer, such as smoke alarms or a security system, that reduce the likelihood that damage or theft will occur in the first place.
How do past claims impact home insurance cost?
It depends on the nature of the claim. A fire claim where you are found liable will likely increase your premium by a substantial amount, whereas a medical claim won’t. Just how much a claim raises your premium varies on the provider and the nature of the claim.
There are also further complications when you make the same type of claim twice. Not only will this increase what you pay each month, but, depending on you and your home’s history, it’s possible the provider may even decide to drop you.
Though your premium will increase if you are found at fault, it’s also possible for your monthly bill to increase even if you’re not found to be liable. This is because your home from then on is considered riskier to insure than other homes.