10 Factors That Impact the Cost of Homeowners Insurance

Here are 10 factors that could impact your home insurance costs:

  1. The location of your home
  2. The size of your home
  3. The condition of your home
  4. Whether the home is financed or owned outright
  5. Your level of coverage
  6. Your deductible
  7. Previous homeowners insurance claims
  8. The cost of materials and construction
  9. Your credit score ( except in certain states )
  10. Additional risks on your property

Whether you’re buying a new house or already own your home, home insurance is usually part of the journey. Most standard policies cover your home structure, personal belongings and additional living expenses if you experience a covered event. That typically includes inclement weather and burglary. Most policies also offer liability protection in case someone injures themselves on your property.

While there are no laws that mandate homeowners insurance, virtually all mortgage lenders require it. Premiums vary from state to state, and the average annual cost of homeowners insurance in the U.S. is $1,544, according to the Insurance Information Institute. A variety of things can influence your premiums. Here’s a rundown of 10 factors that could impact your home insurance costs.

1. Your Location

When determining your rate, insurance companies assess your perceived risk—or the likelihood that you’ll file a future insurance claim. If you live in an area that’s prone to adverse weather events, you’ll likely pay more than a homeowner who doesn’t have those risk factors.

In California, for example, many insurers tack on a surcharge if your home is located in a high-risk area for wildfires. These surcharges can range anywhere from 15% to more than 300%, according to the California Department of Insurance. In hurricane-prone Florida, the Insurance Information Institute projects that the annual cost of an average home insurance policy to be more than $4,000.

2. The Size of Your Home

Most insurers will review the size of your home when calculating your premium. This makes sense—if you file a claim, it will cost them more money if they have to repair or rebuild a larger space. As such, greater square footage usually translates to a higher premium.

A small home isn’t the same thing as a tiny house. The latter is usually between 100 and 400 square feet. Tiny homes generally need a mobile/manufactured home insurance policy, rather than standard homeowners insurance.

3. The Condition of Your Home

Most insurers will conduct a home inspection before you can obtain or renew your policy. This usually involves reviewing the exterior, along with the home’s electrical, HVAC and plumbing systems. If an inspection reveals significant issues, you might be hit with higher insurance premiums. An insurance inspection isn’t always necessary but is customary for older homes and homes that are being financed.

Speaking of older properties, insurance for a home that’s more than 30 years old is typically 75% higher when compared to a new home. In some cases, insurance companies may require you to purchase special coverage or add on specific insurance riders or endorsements. Decay, safety issues, materials and historic restrictions can all increase your premiums.

4. If You Own or Finance Your Home

If you own your home outright, you can decide for yourself how much home insurance you need. The level of risk you’re willing to assume—and the amount you’re willing to pay in premiums and deductibles—is entirely up to you. It’s a different story when you have a home loan. Most lenders require that you maintain at least enough home insurance to cover the mortgage. Every lender is different, so be sure you understand your minimum requirements.

If you own your home outright, you can make premium payments directly to your insurer. If you have a home loan, you may have the option of wrapping your insurance premium into your monthly mortgage payment. Those funds are held in an escrow account. When your premium is due, your lender will pay it for you on your behalf.

5. Your Level of Coverage

In general, the more robust coverage, the higher your home insurance premium will be. You can base your coverage amount on how much it would cost to replace or repair your home’s structure. (This number is different from your home’s value, which includes the land your house is on.) You can estimate rebuilding costs by looking at your home’s square footage and the costs of materials and labor. In terms of personal property, take inventory of what you have and ballpark the total value.

You may choose to add extra liability, personal property or dwelling coverage to beef up your policy. Things that aren’t covered by standard policies, such as floods, earthquakes and sinkholes, will require additional policies.

6. Your Deductible

An insurance deductible is the amount you pay before your insurer kicks in their share. A higher deductible usually works out to a lower premium (and vice versa). If you choose to add flood or earthquake insurance, those policies will likely have their own separate deductibles.

If you do opt for a higher deductible, it’s a good idea to have that amount on hand should you need to file a claim. A strong emergency fund is especially important here so you don’t have to worry about the out-of-pocket cost for repairs before insurance kicks in.

7. Previous Homeowners Insurance Claims

If you or the home’s previous owners have a history of filing homeowners insurance claims, you may encounter higher premiums. Again, premiums are based on how risky it is to insure your home. Prior insurance claims could be seen as an indication of risk.

Not all types of homeowners insurance claims affect premiums in the same way. One 2021 survey found that a single weather-related claim increased premiums by an average of 16%. Fire-related claims were on the other end of the spectrum, bumping up premiums by 29%.

8. The Cost of Materials and Construction

Inflation, labor shortages and supply chain issues continue to make headlines. In June 2022, the cost of residential construction materials had increased 19% from a year earlier, according to the National Association of Home Builders. Since rebuilding costs play into your home insurance premium, you may see rates rise to keep up with higher prices.

In 2021, the national average home insurance premium was $1,398 per year, according to the Insurance Information Institute. That number increased by more than 10% in 2022.

9. Your Credit Score

Home insurance companies in some states will consider your credit, but the information they check isn’t the same as the credit score lenders use. Instead, they use a credit-based insurance score, which is meant to help predict your likelihood of filing an insurance claim. It’s one of many factors that could affect your premium.

Taking steps to improve your credit could reduce your homeowners insurance rate. That includes paying your bills on time, reducing your debt and limiting how many new credit accounts you apply for.

10. Additional Risks on Your Property

Having certain features on your property could increase your perceived risk. If you have a trampoline, pool, hot tub or dogs, for example, home insurers may worry there’s a higher chance of someone getting hurt on your property. They may require you to purchase extra liability insurance as a result, which will cost more.

How to Lower Your Homeowners Insurance Costs

Here are some simple ways to potentially lower your home insurance costs::

  • Increase your deductible.
  • Be mindful of how often you file claims.
  • Reduce your risk by installing a security system or other safety measures.
  • Do away with things like trampolines or treehouses, which could improve your risk profile.
  • Bundle your home and auto insurance.
  • Look into other discounts, like rate reductions for veterans, students, seniors, alumni groups and more.
  • Modify your coverage (within reason so that you’re still appropriately covered).
  • Improve your credit.
  • Shop around for a better rate—Gabi-, which is part of Experian, makes it easy to compare home insurance rates.

The Bottom Line

Many different factors go into your home insurance costs. Understanding what they are (and how to use them to your advantage) can help bring down your total spend. Improving your credit score could potentially land you a better rate. Signing up for free credit monitoring from Experian can keep you up to date with what’s on your credit report.

By Marianne Hayes