Homeowners insurance is necessary to safeguard you from financial loss in the event of a calamity. However, that security comes at a cost: your homeowners insurance rates. In this post, we’ll explore at what premiums are, how they’re determined, and other information you should have before buying a homes coverage.
What is a Homeowners Insurance Premium?
The policyholder’s monthly payments to their house insurance provider are known as homeowner’s insurance premiums. They may be done on a monthly or yearly basis. In return, the homeowner receives the funds necessary to restore their house after a covered claim from the insurer.
Premiums should not be confused with the deductible, which is the amount a homeowner must pay after a claim before the insurer will cover the remainder. A house insurance provider will normally offer customers a variety of deductibles, but rates are determined by the criteria listed below.
factors into a homeowners insurance premium?
Here’s a closer look at 10 key factors insurers consider when calculating a homeowners insurance premium.
A 4,000-square-foot home with hardwood floors and granite countertops will cost more to insure than a 1,500-square-foot home without these upgrades. That’s because it costs more to rebuild larger, more expensive homes.
Home age and condition
Older homes typically have older electrical and plumbing systems, which could make them more prone to fires or flooding. In addition, a home with a dilapidated roof could be at a greater risk of property damage from storms, so these homeowners typically pay more than homeowners with a new home.
Certain features, like smoke detectors, sprinkler systems, and storm shutters in some areas, can help reduce homeowners insurance costs. Others, like wood-burning stoves and pools, can increase costs because they increase the risk of fire or injuries.
Locations that are prone to natural disasters like tornadoes and hurricanes typically have higher average homeowners insurance premiums than houses in areas with few natural disasters.
Proximity to the local fire department also affects home insurance premiums, with houses nearer to fire departments costing less to insure than homes further away. That’s because there’s a smaller risk of loss for houses the fire department can reach more quickly.
Statistics show that married couples tend to file fewer insurance claims than single adults, so insurance carriers usually offer more affordable rates to married people. That may not seem fair to everyone, but there is some data to back this up.
Insurers look at credit history as a measure of risk. Individuals with a high credit score are considered to be more responsible and less likely to file an insurance claim compared to individuals with lower credit scores. Again, this may not seem fair to everyone, but it is based on statistical data.
Homeowners who have filed home insurance claims can expect to see their home insurance premiums rise for at least a few years. Usually, it takes about three years for these claims to fall off a policyholder’s record and stop affecting their rates.
Desired level of coverage
The type and amount of home insurance you might need has a significant impact on homeowners insurance premiums. Policies with higher limits and optional coverage, like extended replacement cost or extra coverage for electronics, will cost more than a bare-bones homeowners policy.
Insurance carriers usually give policyholders a choice between several insurance deductibles. Higher deductibles mean higher out-of-pocket costs for the homeowner in the event of a claim, but they also reduce premium costs.
Every homeowners insurance company looks at an applicant’s home and personal factors a little differently. Some companies put more weight on credit and marital status while others may charge a higher home insurance rate in areas prone to disasters. That’s why it’s important to get multiple home insurance quotes to see which offers you the best coverage at the most affordable price.
How to calculate your homeowners insurance premium
There isn’t an easy way for you to calculate your own homeowners insurance premium because you don’t know how an insurance company is going to evaluate your application. The best way for you to figure out how much your homeowners insurance premiums will be is to compare quotes from a few different companies.
How much is the average homeowners insurance premium?
If you’ve ever wondered “How much is a home insurance premium?” check out our research on average homeowners insurance premiums in the U.S.
The average cost is $2,305 per year, according to Insurance.com, but you could pay much more or less than this, depending on the factors outlined above.
Is a homeowners insurance premium included in closing costs?
There isn’t a definitive answer on this. Lenders typically require homeowners who have a mortgage to pay their first annual homeowners insurance premium at closing. These aren’t necessarily a part of closing costs, but you pay them at the same time.
In some cases, it may be possible for the home buyer to convince the home seller to pay the home insurance premium for the first period as a condition of the sale. But that’s something buyers will have to try to negotiate for themselves.
How to pay your homeowners insurance premium
Homeowners who have an escrow account through their lender may not have to worry about paying homeowners insurance premiums directly. Some of their monthly payments to the lender automatically go into this escrow account to cover the home insurance. Then, when the next annual payment is due, the lender automatically pays it out of the escrow account.
Borrowers with less than 20% equity in their home usually have to do it this way. Those with more equity may have a choice. If they choose not to have their home insurance paid through the escrow account, they can pay it themselves, either monthly or annually, by making a payment online or writing a check to the insurance carrier.
What happens if you don’t pay your home insurance Premium?
The ramifications of failing to pay a home insurance payment on time might be severe. The homeowners insurance coverage might expire, leaving the house vulnerable in the case of a calamity. If the residence is uninsured, the mortgage lender may be forced to foreclose since its investment is at danger.
Homeowners’ credit ratings may suffer as a result of the missing payment, and they may have difficulties obtaining new house insurance as a result of letting their current coverage expire.
When a homeowner misses a payment due date, they usually get a 30-day grace period. If you pay within this time range, your insurance will not expire. If you don’t believe you’ll be able to make your payment on time, speak with your insurance agent as soon as possible to explore your options.
Is it possible to bargain for lower house insurance rates? No, not at all. A homeowner’s insurance isn’t going to let them pay less than they owe. However, by contacting your insurer, you may be able to find a solution to reduce your rates, such as by increasing your deductible.