Homeowners insurance is not exciting. You'd be hard pressed to find someone to disagree with that. Well, maybe an actuary. Still, homeowners insurance is one of the few purchases you make in the hopes you'll have no use for it.
How do you know you're getting a good deal on your homeowners insurance? For most purchases, the first thing you would do is find out what everyone else is paying except that's not so easy to do with homeowners insurance. Find out what affects your homeowner's insurance premium and what everyone else is paying.
By the way, independent insurance agents are pros at this. They’ll help guide you through all your options, weigh the good and the bad, and even see you through it all from start to signature. See, easy, isn’t it?
How Insurance Companies Set Rates for Homeowners Insurance
How insurance companies make money is actually pretty simple. The insurance company takes in money from premiums, invests it, and pays out money in claims. If the money they pay out in claims is less than the money they take in from premiums and investments, the boss is happy.
Where you live has the biggest impact on homeowner's insurance premiums. Homeowners insurance premiums are based on the property value. Real estate values tend to be higher in heavily populated places. Resort, retirement, and cities with rapid growth also have higher property values, and higher property values mean higher premiums. Construction costs, building codes, and interest rates also impact premiums.
Why You're Paying What You're Paying
Some things you can control, others you can't, like the weather and real estate values. If you live in Miami, New York City, or Tampa in a single family home, you are at high risk for storm surge damage. That's that. If you live in San Jose, CA, where the median home value as of 2019 is $1.2 million, you're paying way more than the folks in Binghamton, NY, with a median home value of $130,000. If you have a history of submitting claims, you may be paying extra.
The good news is that there are a lot of factors that you can control, especially when you are buying a house. A home built predominantly of wood will have higher premiums than a home with stone construction. A location close to a fire station pays less than homes much further away. Even the pets you have can have an impact on your premium. Higher risk dog breeds like pit bulls carry higher premiums or may be uninsurable altogether. Have a boa constrictor or a ferret? Better check the insurance company's exotic pet list.
How to Pay Less for Homeowners Insurance
Taking advantage of bundling discounts is an easy way to lower your premiums. Many companies will reduce the homeowners premium if you also have other coverages with them like auto and umbrella. Adding a security system, deadbolt locks, and smoke and carbon monoxide detectors can also help. Raising your deductible can also reduce your premium. So can a great credit rating.
If you're thinking about a pool, a trampoline, or playground equipment for the kids, play it safe. Check with your insurance company to see if it will affect your premium or coverage.
The type of homeowners insurance you have will also influence the premium that you pay.
Types of Homeowners Insurance
- Special Form Policy: This policy is also referred to as an HO-3 policy, and it’s the most common form of homeowners insurance. HO-3 Covers your home against all perils (perils are bad things that can happen like lightning strikes, fires, etc.) except those specifically listed as exclusions. HO-3 will cover your home for its replacement value which may be different than the market value. Personal property like furniture is also covered, but only for its cash value, and only if the damage is caused by a covered peril.
- Comprehensive Policy: This policy is referred to as an HO-5. It covers your home and personal property for its replacement cost.
- Condo Insurance: Condo insurance is also called an HO-6 policy. Condo insurance covers damage from the "walls in" because the structure is usually covered by a policy purchased by the homeowners association.
- Historic Home: Also called an HO-8. An HO-8 covers the same perils as an HO-3 except it is modified to suit the needs of older homes. Landmark and registered homes often carry this type of coverage.
So, What Is Everyone Really Paying for Homeowners Insurance?
The chart below shows the average HO3 homeowners insurance premium by state for a median value home. The chart also shows you how your state ranks in cost. If your state is ranked number one, (spoiler alert, it's Louisiana) congratulations! You have the highest premiums in the country.
|State||Median Amount Of Insurance||HO 3 Premium||Rank|
|LA||$200K - $299K||$ 2,030||1|
|FL||$200K - $299K||$ 1,794||2|
|TX||$200K - $299K||$ 1,776||3|
|OK||$175K - $199K||$ 1,764||4|
|KS||$200K - $299K||$ 1,625||5|
|CO||$200K - $299K||$ 1,543||7|
|MS||$175K - $199K||$ 1,459||8|
|NE||$175K - $199K||$ 1,383||9|
|AL||$175K - $199K||$ 1,315||11|
|AR||$175K - $199K||$ 1,309||12|
|MO||$200K - $299K||$ 1,266||15|
|MN||$200K - $299K||$ 1,247||17|
|SC||$200K - $299K||$ 1,239||18|
|SD||$200K - $299K||$ 1,239||19|
|GA||$200K - $299K||$ 1,219||20|
|MT||$200K - $299K||$ 1,148||21|
|WY||$200K - $299K||$ 1,132||22|
|NC||$200K - $299K||$ 1,070||23|
|State||Median Amount Of Insurance||HO 3 Premium||Rank|
|TN||$175K - $199K||$ 1,060||26|
|IN||$200K - $299K||$ 1,027||27|
|IA||$200K - $299K||$ 1,007||28|
|KY||$175K - $199K||$ 1,004||29|
|NM||$200K - $299K||$ 985||30|
|IL||$200K - $299K||$ 928||32|
|VA||$200K - $299K||$ 907||33|
|MI||$200K - $299K||$ 897||34|
|MD||$200K - $299K||$ 876||35|
|WV||$175K - $199K||$ 870||36|
|NH||$200K - $299K||$ 841||38|
|PA||$200K - $299K||$ 841||39|
|ME||$200K - $299K||$ 794||41|
|VT||$200K - $299K||$ 775||42|
|AZ||$200K - $299K||$ 768||43|
|WI||$200K - $299K||$ 745||44|
|WA||$200K - $299K||$ 744||45|
|DE||$200K - $299K||$ 721||46|
|ID||$200K - $299K||$ 693||47|
|NV||$200K - $299K||$ 658||48|
|UT||$200K - $299K||$ 621||49|
|OR||$200K - $299K||$ 615||50|
The average premium for your state is a good benchmark to start with. If you're paying a lot more or a lot less, it may be because of the metro area you live in and/or the amount of coverage you have. Talk to an independent insurance agent. They can help you sort it out.
What's So Great about an Independent Insurance Agent?
Insurance policies are complex, and searching through options can be confusing, time consuming, and frustrating. An independent insurance agent's role is to simplify the process.
They will make sure you get the right coverage that meets your unique needs and will break down all the jargon so that you understand exactly what you're getting.
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National Association of REALTORS® Median Sales Price of Existing Single-Family Homes for Metropolitan Areas
NAIC Guide To Homeowners Insurance
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