How Much Is Homeowners Insurance?
The cost of this necessary protection can vary based on some unexpected factors.
- National Average: $1,300 to $1,500 per year
If you’ve ever applied for a mortgage, you know that lenders require proof of homeowners insurance before they’ll disburse the funds you need to buy your house. Lenders know their business; they know they’re handing you a lot of money and that the only thing protecting their investment is your good credit and the house itself as collateral. To keep their investment safe, lenders need to know that if you default they’ll have a whole, salable home in solid structural shape to sell to recoup their loss. And they’re correct; homeowners need to protect their own investment as assiduously as the lenders protect theirs. Homeowners insurance is the most important component in that first layer of protection.
But when you’re buying a home, especially if it’s your first home, it can feel like money is oozing out of your pores—fees for this, taxes for that, payment for another thing—so it can feel like the cost of homeowners insurance is just one more thing added on to your already-ominous monthly mortgage payment. You’ll want to save as much as you can while still protecting what is probably the biggest investment you’ve made to this point. So how much is homeowners insurance? The answer is that the cost depends on many factors. Some of those are out of your control, like the age and condition of the home, the history of claims made on the home in the past, and how close by the fire station is. Others are decisions you can make, such as choosing a less expensive monthly payment with a higher deductible, or deciding what extra coverage to add. And some factors come down to lifestyle choices: your breed of dog, your backyard entertainment structures, and even your marital status can affect the cost of your coverage.
Factors in Calculating Homeowners Insurance Cost
Is your house close to a shoreline? A fault line? How’s your credit? Does your backyard oasis include an inviting pool? All of these are factors that will affect the cost of homeowners insurance. Two similar houses on opposite sides of the same town can incur very different homeowners insurance costs based on the home values and replacement values in the area. While the national average cost of homeowners insurance is $1,312 per year, that can vary widely by region and other components. You’ll need to consider your house style and location, and then the various optional factors, before seeking out a quote.
Home Replacement Cost
In the event of a complete home loss, you’ll need to rebuild your home from the ground up. Homeowners insurance rates will be based at least partly on this calculation. While the rebuild will certainly include some improvements or upgrades (if only because it’s new and up to current code), the replacement cost is the price of rebuilding a home that is similar in size, quality, and material to your current home. It’s important to note that this is not the same as the market value of the home: That number includes the cost of the land on which your house sits, and if you’re rebuilding a house, you don’t have to pay for the land, so insuring based on the market cost will result in a higher premium than you need to pay. Determine the rebuilding value of the house itself and use that number to scale the home replacement cost.
Age and Construction of the Home
It’s a fact you should consider when choosing a home: Older homes simply cost more to repair and may be in need of it more often. Replacing vintage floorboards and tiles, rebuilding plaster walls, and patching canvas ceilings require specialists and costly materials, which your insurer will see as increased costs in the event of a repair. As a result, your older home will cost more to insure than a newer one. In addition, the construction of an older home likely does not meet current code. By law, a home being repaired by a licensed contractor must be brought up to current code, which can add thousands of dollars in material and labor to the repair cost. Standard homeowners policies do not cover that cost, but most companies will offer you the opportunity to purchase a separate endorsement to your policy to cover the costs of code updates—for an additional cost, of course.
The deductible on your policy is one of the few things you can really control when you choose a homeowners insurance policy. In the event that you need to make a claim, the deductible is the amount of money you’ll have to pay out of pocket before the insurance kicks in and starts covering your loss. This is your opportunity to hedge saving money against how likely you are to make a claim in a given year. If your house is in good shape, isn’t surrounded by large trees, and isn’t situated in a high-risk area, you may be comfortable choosing a higher deductible and enjoying the annual savings that high deductible shaves off your premium. If you do have to make a claim, the money you didn’t pay toward your premium will take some of the sting out of the extra money you have to pay out to meet your deductible. On the other hand, you can choose to pay more on your premium to keep the deductible low, so in the event of a covered event your own out-of-pocket expense is kept lower.
Dog Ownership and Dog Breed
Dog bites are the root of a significant number of liability insurance claims, so your insurer will ask if you own one (and this isn’t a place to shade the truth: If you indicate that you don’t have a dog and that dog bites someone, you won’t be covered). The hike in the premium should be small, unless you own a dog that is on a list of restricted breeds carried by your insurer. If your dog is of a breed classified as “aggressive,” such as Dobermans, Rottweilers, pit bulls, and others, you may not be covered or may be required to purchase a separate rider on your policy especially for the dog at an additional cost.
Cozy, efficient, and not subject to failure in a power outage, wood stoves can be an economical and energy-efficient way to heat your home. But they’re also essentially a box of fire sitting in the middle of the house, burning all day and night. Insurers view them as a huge risk and will raise your insurance cost as a result. You can offset this increase with some companies by installing smoke detectors near the stove and providing evidence that the stove was installed by a licensed installer and is regularly maintained.
Basic insurance policies do not cover the equipment and supplies you keep in your home for a home-based business. You will want to protect that equipment, however, the same way you protect the rest of your home. Most insurers will offer you the option of purchasing a business endorsement for your policy, which would add coverage to your homeowners policy, or you can purchase a completely separate business policy. Either will provide you with good protection, but both will increase the cost of your insurance. Depending on the type of business, you may be able to claim the cost of the insurance on your taxes if the space is defined as a home office.
Sometimes a remodel comes with the added benefit of a lower insurance premium. If you update and upgrade your electrical or plumbing systems, you reduce the likelihood of damage resulting from fires and leaks and increase the value of your home, and your insurer may reward you for that. Bringing other aspects of your home up to code, such as outdoor steps and railings or decks, reduces the liability risk of someone being injured in a fall and may therefore reduce the cost of your policy.
Home Liability Limit
One component of your homeowners insurance policy is liability coverage. Liability covers damage or injury that you, your family, or your pets cause or that others sustain while on your property. The coverage includes the cost of defending you in court, should that be necessary, and fines or payouts demanded by the court. You’ll have to make a decision about what limit you’d like to place on the coverage: If you select a higher limit, your premium will be higher, but so will your coverage. Most policies start with a limit of $100,000, but most insurers recommend a limit of $300,000. If you have a lot of personal assets that someone suing you might try to take, you may choose to set the limit even higher, but each increase in the limit also drives up your insurance cost.
Your insurance score is yet another label placed on you by companies deciding how big of a risk you are. While your credit score looks exclusively at your credit and financial history (and operates under a specific, if mysterious, formula), your insurance score is a combination of your credit score and history of insurance claims. But the insurance score uses the information in your credit score differently than the credit agencies do: It weighs bankruptcies, liens, and total debt higher than the timeliness of payments and number of accounts. This is because those elements statistically make it more likely that you’ll file a homeowners claim, either because you can’t leverage your own credit further to pay for appropriate maintenance work or because you have a history of letting problems go unaddressed. Different companies use different processes and formulas to create their scores, but in general you can raise your score by paying off any debt that is in default, carrying modest credit card balances (ideally paying them off monthly, but making the payments on time if you can’t pay them off), and handling your finances to avoid tax liens or judgments against your salary. In addition, you should consider when it’s worth making a claim on your insurance policies; many claims for smaller concerns can lower your insurance score.
Did you know that married couples are statistically less likely to file homeowners insurance claims than single people? It’s true! So your marital status may help you: Because married couples are less likely to submit claims, they cost insurance companies less, and so are sometimes spared from paying a higher premium.
Hot Tubs, Swimming Pools, or Outdoor Spas
These water features can make your yard into a private oasis to help you get away from the world—but they are outdoors, which increases the possibility of damage during storms or acts of vandalism. As a result, your coverage costs may increase. Also, because they’re water features, there is an increased possibility of injury to you and your guests, so some insurers may require that you increase your liability limit if you have a hot tub, pool, or spa.
One of the assessments a homeowners insurance company will make before offering you a quote on a policy is the age and condition of your roof. Why? Because the roof is the first layer of defense against many of the threats to your home. A newer roof in good condition provides protection against wind damage, water infiltration and ice dams, and it offers a better shield against falling tree limbs and hail. A strong roof protects what’s inside. An older roof, especially if the flashing is aging and the shingles are showing their age, is more likely to leak in a driving rain, which can lead to damaged property, rot, and mold, or give way to a falling limb resulting in structural damage and high repair costs. Because of this, homeowners insurance companies will charge a lower rate to a lower-risk home with a newer roof.
Home Security Features
Providing proof to homeowners insurance companies that you take the security of your home seriously can result in a lower rate. Insurers may ask questions about the types of locks on the doors and the materials the doors are made of to decide how easy it will be to break into your home, so investing in a new, high security–rated deadbolt or replacing old hollow-core doors can take money off of your premium for years to come. In addition, installing a monitored security system can result in a significant premium reduction—as much as 20 percent. Before choosing a system, check with your insurer to see what their restrictions are about what kinds of systems earn the discounts. Some companies require fully monitored security systems, while others simply require a Wi-Fi system with self-monitoring. The savings on the insurance premium can significantly offset or cover the cost of the security system, so you get two benefits for one cost.
Proximity to a Fire Station
This is a highly logical consideration that many people have never thought about. If you live close to a fire station, first responders will arrive quickly at your home in case of a fire and can contain and extinguish the fire swiftly and efficiently, reducing damage and reducing the costs to clean up. As a result, your premium may be lowered in recognition of the reduced risk. On the other hand, if your house is off the beaten path, far afield, or in a rural area (especially if there isn’t a municipal water source and fire hydrants), the likelihood that the firefighters will be able to put the fire out at all is reduced, so your insurer will likely respond with a higher rate.
Proximity to Coastline or Body of Water
Coastal homes are beautiful and relaxing, but they come with added risk: Any body of water is a flood threat. Whether it’s a picturesque stream, a serene lake, or an ocean in your backyard, proximity to water will jack up your insurance rates.
Standard homeowners insurance does not cover damage from floods that are outside the home. As a result, if your home is close to water, your homeowners insurance company may require that you purchase separate flood insurance from the Federal Emergency Management Agency (FEMA). Even if your home isn’t in a waterfront or low-lying area, flood insurance can be a good investment if the water tables in your area are high.
The water isn’t the only threat to a coastal home, however. Coastal areas are more exposed to strong, damaging winds, and salt spray can cause steel and wood to age faster and fail sooner, so those risks also produce higher rates.
If you’re purchasing a home, you’re intimately familiar with the effect your credit score has on interest rates and borrower’s fees. Your credit score may also impact your homeowners insurance policy premium. Homeowners with lower credit scores may have to pay more simply because the insurance company regards them as a bigger risk; while this is not necessarily true, it’s a fact of the insurance market. Those with higher scores may pay less.
For insurers, the ideal customer pays on time every year and never makes a claim. This is how they make money. They understand, of course, that sometimes claims MUST be filed and won’t necessarily hold that against you. If, however, you’re a frequent filer—you file a claim for every stick that bounces off the roof and every drop of water from a pipe—you may find that the lower rates are not available to you. If you’ve purchased a new-to-you house and there have been many claims filed in the past on that house, you can be upcharged for that as well. Especially damaging are multiple claims of the same type. Your rate won’t be enormously affected by one weather claim, because that’s what homeowners insurance is for. A fire claim will have a slightly larger effect, but a second fire claim (or second or third theft claim) suggests to the insurer that you aren’t using appropriate safety precautions and are at a higher risk for future claims.
A treehouse, trampoline, and swing set can save you money on amusement park visits, but they can also cost you on insurance rates. Unless your yard is fully fenced—and sometimes even then—those structures can be classified as attractive nuisances. Every child who passes by will be drawn to the structures, and that makes them a risk. As much as we’d like to think that all children are accompanied by parents when strolling the neighborhood, they’re kids, so sneaking over to try out the neighbor’s trampoline or water slide in an unguarded moment could be irresistible. Because you won’t necessarily know this is happening, injury is more likely, so you’ll need to raise your liability coverage to be safe.
Attractive nuisances aren’t limited to play structures, either. An ongoing construction project with the promise of a cool place to play hide-and-seek, or for adults, the promise of tools and interesting conversation pieces, can draw in unexpected or uninvited guests and cause a higher rate.
Flood insurance is a policy that is often added on to your base policy. Umbrella policies are an add-on that increases your personal liability coverage. If your net worth is significant, you host a lot of large gatherings, you’re a landlord, or you have a new driver in your household who could cause an accident for which you could be held liable, an umbrella policy is an economical way to protect you financially from liability claims.
Beyond whole-policy add-ons, though, there are endorsements and line-item additions that can drive your rate higher. If your dog is on the restricted list, you can add an endorsement to include coverage of that dog. If the replacement cost of fine jewelry in your home may exceed the maximum payout from your policy, whether it’s an engagement ring or grandma’s antique brooch, you can add an endorsement to cover the difference. Certain musical instruments or other items of personal property may be worth more than the limits of the homeowners insurance policy, and you can add them on as individually insured items. All of these additions have a cost, so making good decisions about what is covered, what needs to be covered, and what the coverage limit needs to be will help you arrive at the best balance for you.
State of Residence
Where you live can make a significant difference in your policy cost. Weather threats are assessed by state, and sometimes the threat of crime or vandalism is assessed on a state basis as well. Several states have their own insurance guidelines that determine how much coverage you must carry to protect their own coffers in case of a natural disaster, and those regulations will fold into your costs as well. Finally, if you live in a state that is far from where building materials are produced, those materials will cost more in a repair or rebuild. Your insurer knows that and covers their own increased cost with a higher rate.
As with any other provider, contractor, or lender that you choose to do business with, it is critical to do your homework. Just because your lender or real estate agent offers you the names of a few insurance companies doesn’t mean those companies are right for you. Ask friends and family, shop around online, make phone calls, ask for quotes, and check the business records of companies you’re considering. The cost of the same policy at different insurers can vary significantly, so make sure you’re not overpaying by choosing stable, established insurers and getting as many home insurance quotes as you’re able to.
Types of Homeowners Insurance Policies
To make it a little easier to compare policies, homeowners insurance policies are broken down into eight forms. Each form includes a particular level of coverage: a list of perils that are covered, the amount of liability, and sometimes the types of homes that are covered. This simplifies the process of shopping; once you know the base form that you’re looking for, you can then determine what add-ons you need to make the coverage appropriate for your home and then communicate that to an agent. There are two types of coverage here: named peril and open peril. Named-peril coverage is limited to the specific perils listed in the policy, with any other perils excluded. Open peril is the opposite: All perils are covered, unless they are specifically listed as exclusions. This can be a little confusing, so it’s important to read your plan documents carefully and ask your insurer for clarification before signing.
HO-1 – Basic Form
This is a truly simplified, basic form of coverage. It is named-peril coverage that includes ONLY the perils listed, which are fire, theft, and vandalism. No other perils are covered. In addition, there is no liability coverage. It is the least expensive form of homeowners insurance.
HO-2 – Broad Form
Broad Form coverage, like Basic Form HO-1, only covers named perils. Fire, theft, and vandalism are joined by coverage of detached structures, personal property coverage, and additional living expenses during a repair. A limited amount of liability coverage is included.
HO-3 – Special Form
The most common type of homeowners insurance, HO-3 policies cover the physical structure of your home from anything that is not specifically excluded. This is a shift from HO-1 and HO-2 coverage: Those only cover what’s listed, while HO-3 is open-peril insurance that covers everything except noted exclusions.
HO-4 – Contents Broad Form
HO-4 is essentially renters insurance. It is named-peril coverage for theft, explosions, and additional living expenses during a repair, but it is focused on personal property: This policy does not cover the structure of the building.
HO-5 – Comprehensive Form
The most comprehensive coverage option, HO-5 covers—well, everything that is not excluded. It includes coverage for all perils that are not named as exclusions (such as damage caused by neglect) for your dwelling, outbuildings, and personal property.
HO-6 – Unit-owners Form
Aimed at condominium owners, who have different needs from both homeowners and renters, HO-6 provides named-peril coverage for damage to the interior, personal property, personal liability, and guest medical payments, along with loss of use and additional living expenses, but it does not cover the structure of the building.
HO-7 – Mobile Home Form
HO-7 is similar to HO-5 in that it is open-peril coverage of all perils not excluded for the dwelling and personal belongings. It has a different set of parameters, however, as it’s intended for mobile home dwellers and includes coverage that is specific to manufactured and mobile homes.
HO-8 – Modified Coverage Form
Has your home been declined for homeowners coverage because it’s too high-risk? HO-8 coverage will list the specific perils you’re covered for and provide peril coverage only for your dwelling and personal items. Because it’s aimed specifically at homes that don’t qualify for standard coverage, expect to pay extra for this option.
Do I Need Homeowners Insurance?
In a single word, yes. First, if you have a mortgage, your lender will most likely require that you carry homeowners insurance. In fact, they’ll probably require that you pay extra toward your homeowners insurance with each monthly mortgage payment and let them pay the insurer, to make sure that the coverage doesn’t lapse and is sufficient to protect their investment. From your end, that’s one less bill to pay, but it also means that it’s easy to forget to review your coverage periodically, which is important.
Even if you don’t have a mortgage, a home and yard that are uninsured are like an invitation to bankruptcy and financial ruin. It’s great to have an emergency fund for unexpected repairs and upkeep, but most people do not have the resources to pay out of pocket for a home that is completely destroyed by fire or collapse—especially when you consider the cost of the planning, permits, teardown and haul away of the former home, materials, furnishings, and all of the personal property that was lost, along with the cost to live somewhere else for months while the rebuild is completed. For many people, their home is their security against financial disaster. A home equity line of credit is a great safeguard, but when the home itself is lost, that’s no longer an option. Homeowners insurance is a fundamental, unambiguous need if you own a home. Consider one of the best homeowners insurance companies like Lemonade or Allstate to cover one of your biggest assets.
How to Save Money on Homeowners Insurance
The cost of homeowners insurance is remarkably flexible based on what you’re insuring. There are a number of ways to lower your overall cost by making a few smart decisions.
- Raise your deductible. It may cost a little more if you need to make a claim, but you’re reducing the money flowing out each month.
- Make small repairs yourself rather than filing a claim, especially if the total cost will be lower than your deductible.
- Ask your lender about discounts that you may not know exist: paperless billing, first-time homebuyer status, and even your profession may get you a percentage off.
- Add a security system. You’ll cut your rate, possibly enough to cover the cost of the system—which is like adding a security system for free.
- Ask about bundling your homeowners policy with life insurance and auto insurance at the same insurer. Often package deals are available for multiple lines of insurance.
- Collect at least three house insurance quotes to compare coverage and cost.
Questions to Ask About Homeowners Insurance
Now that you’re familiar with the ins and outs of homeowners policies, you’re in a great position to ask your agent specific questions to make sure that you’re getting the coverage you need at the best rate you can. Some important questions you’ll want to remember to ask:
- What does your standard policy cover?
- Does the location of my home require flood insurance? Based on claims in my area, should I purchase it even if it’s not required?
- Based on the age of my home, do I need to consider sewer coverage?
- Based on my home and lifestyle, how much liability insurance do I need?
- How often do you reassess the rate for my policy?
- Will I need a home inspection or appraisal in order to buy a policy? Is that appraisal free if I buy the policy?
- What are the policy limits? Are the limits per claim, per event, per year, or overall?
There are many components that make up your homeowners insurance cost, and the number of distinctions and bits and pieces can make it difficult for homeowners to even get started. But it’s critical to both the protection of your home and pocketbook to ask questions and make sure you really get the coverage you need. Here are answers to some of the most common questions and their answers.
Q. How much on average is homeowners insurance?
The national average is $1,300 to $1,500 per year, but this will vary considerably based on location, the size and specifics of your home, and how much coverage you elect.
Q. How much is homeowners insurance on a $200,000 house?
The insurance value should be based on the replacement cost of your home, which will be different from the market value (the market value includes the value of the land). You’ll need to insure at least 80 percent of the value of your home. An average cost for insurance on a $200,000 home would be $1,018 per year.
Q. How is homeowners insurance calculated?
Homeowners insurance includes dwelling coverage (the structure of your home and nearby structures), personal property (the items you own inside the home), liability coverage (coverage if someone is injured on your property or you or your family cause damage elsewhere), and additional living expenses (the cost of living elsewhere while a repair is complete). You’ll select coverage limits for those parts of the policy, then add any extra coverage you’ll need based on your home and lifestyle. The cost will be calculated based on the coverage limits you choose, balanced against your credit score, insurance score, and any other risks or safeties you have in place. Once the total cost has been calculated, you can balance your monthly cost by choosing a higher or lower deductible. You’ll pay either way; what you’re choosing when you adjust the deductible is how much you want to pay out in premium versus how much you’ll pay out of pocket before the insurance kicks in if you need to make a claim.