How Much Is Homeowners Insurance on Average?

If you own a home and have a mortgage, you are required to get homeowners insurance. But with the rise of natural disasters and losses to insurance companies, rates are rising. In general, the average national average cost of homeowners insurance is $1,411 annually. This price is contingent on several factors, though, and you should get several quotes to see what you can expect to pay for insurance on your home. 

Introduction to Homeowners Insurance

Homeowners insurance is a policy that pays to repair or replace your home and its belongings if there is a covered loss. Covered losses include fire, theft, and water damage (not flood). For those who have a mortgage, the mortgage company will require you to get a policy and often impound the insurance into the monthly mortgage payment. This is to ensure the home is covered and protected, and the bank won’t be investing in a property that could burn to the ground and not be rebuilt. 

Factors Influencing Homeowners Insurance Costs

There are several factors affecting the average cost of homeowners insurance. 

Property Location

Where your home is will play a major role in the pricing of the policy. Locations have specific risks, such as weather and natural disaster risks, along with crime risks. This will affect the area loss rate and can increase the price of insurance. 

Home Value and Construction Cost

Your home value won’t directly affect the insurance, but the value of your possessions will. The higher valued the value of your possessions, the higher your insurance is. The actual building coverage is based on the construction cost of the home. The insurance company factors in what it would cost to rebuild the home, not the market value. Rebuilding is what makes you whole to the market value, which fluctuates widely. 

Coverage Amount and Type

A homeowners policy is standardized at the onset, with all payout coverages contingent on a percentage of the home’s construction costs. You will pay more for the policy if you need more personal property or liability coverage. There are also endorsements that you can get, which will cause the policy price to go up. 

Deductible Amount

The deductible is what you will pay for a loss. It is your out-of-pocket expense when something goes wrong. The more you are willing to pay in a loss, the lower your premium will be. There is an inverse relationship between these two components.

Credit Score

Some states allow insurance companies to use credit scores to determine premium pricing. The higher your credit score, the lower your premium will be. This is because insurance companies view those with higher credit as being more responsible, thus having fewer claims. 

Claims History

Your claims history will directly affect your cost of insurance. The more claims you have, the higher the insurance will be. In fact, the more claims you have, the harder it will be to find an insurance company that will insure the house. 

Security and Safety Features

Security and safety features such as monitoring systems and fire sprinklers can qualify you for discounts that save you money on premiums. Ask your insurance agent about your home’s safety features that can help. 

Average Cost of Homeowners Insurance by State

The average cost of homeowners insurance across the nation is $1,411 annually. For a home construction cost of $300,000, the average cost is $2,392 annually. Rates vary widely by state. 

States with Highest Premiums

The rates for states with the highest national average for homeowners insurance are generally those found in tornado alley or in hurricane zones. 

States with Lowest Premiums

States where there are fewer natural disasters experience the lowest rates. 

Cost of Homeowners Insurance by Type of Coverage

The cost of your policy will depend on the type of coverage you get. The possibilities are: 

• Basic coverage: An HO-1 policy with limited protection against named perils like fire, lightning, and windstorms. 
• Broad form coverage: More comprehensive coverage for a variety of perils and losses. 
• Special form coverage: The HO-3 policy is the most common type of policy with almost the widest level of coverage and is more expensive than basic and broad coverages.
• Comprehensive coverage: An HO-5 policy has the widest coverage and is the most expensive policy. Only named exclusions are not covered.  

Steps to Calculate Your Homeowners Insurance Cost

There are some general steps in determining the cost of your homeowners insurance as quoted by an insurance company.

1. Assess your home’s value: Remember, this is the construction value, not the market value. Insurance companies have a calculator that does this for you. 
2. Determine the necessary coverage level: Increase your personal property or liability coverage if necessary. 
3. Consider additional coverage options: Get any endorsements for things like back up of sewer and drain, or identity theft protection. 
4. Evaluate deductible choices: Deductibles may be a fixed amount or a percentage of the construction dwelling cost. Pick one you can afford and that makes sense for a claim. 
5. Compare quotes from different providers 

Tips to Lower Your Homeowners Insurance Premiums

Here are some tips to help you lower your insurance premiums. 

Bundle Insurance Policies

Bundling with auto insurance can help you save on insurance. Savings discounts vary from insurance company to insurance company, but you can expect to see anywhere from 10-22% in savings. 

Improve Home Security

A security system can qualify you for a discount on homeowners insurance. Whether the system is just a camera or is connected to a live security response team at the home will determine your discount. 

Increase Your Deductible

By raising your deductible, you can lower your premium. Run the numbers and determine if the amount of savings is worth the extra cost of a claim. It may not make sense to go too high. 

Maintain a Good Credit Score

Because some states allow credit to be used to rate policies, you want to have good credit. This will help drive down the cost of insurance. 

Regularly Review and Update Your Policy

Talk to your insurance agent annually to ensure you are getting all the possible discounts and have the right coverage in place. Don’t hesitate to shop the policy around to see who will offer the best insurance premiums.