14 Factors that Influence Your Home Insurance Cost

14 Factors that Influence Your Home Insurance Cost

When people shop for a home, they are inundated with numbers, from home valuation and price negotiations to mortgage choices and interest rates. One number that should not be overlooked is the cost of homeowner insurance. It becomes an escrow item, is required by the mortgage lender, and has been known in some instances to drive up the mortgage payment past an amount the buyers could qualify for, causing deals to fall through. Because it is a significant expense, homebuyers should understand the top influencers of homeowner insurance premiums.

#1: Home Replacement Cost

This is a major premium cost influencer, and the homebuyer has some control over it depending on their risk tolerance for loss of the home. The mortgage lender will require at a minimum enough coverage and an endorsement to get their mortgage balance paid off should the home be lost to a covered event. This can be more than some buyers are expecting for a premium, but it can get worse. If the homebuyer wants to insure for “replacement cost,” the cost to rebuild the home exactly as it is, they can see a dramatic rise in the premium.

#2: Claim Deductibles

When a claim is filed on homeowner insurance there is a deductible that the homeowner pays before coverage kicks in. Some experts estimate that the homeowner insurance premium can decrease by as much as 25% simply by increasing the common $500 deductible amount to $1,000.

#3: Type of Dog Owned

Dog bite lawsuits and insurance claims are common, so the wrong dog breed in the home can increase insurance premiums. Some insurers will decline coverage completely if there is a pit bull or Rottweiler in the home.

#4: Wood Burning Appliances

Whether a wood burning stove or a kitchen range, wood burning appliances are considered above average fire hazards by insurers. Some remedial actions can be taken to reduce the added premiums, such as smoke detectors near stoves.

#5: Home Business

Insurers want the homeowner to take on extra coverage if a conducting a business in the home. Sometimes extra insurance is due to the type of business, and it can also be due to whether clients are seen in the home or not.

#6: Home Liability Limits

This coverage limit is controlled and selected by the homeowner. Many underinsure, even if they are not conducting a business. Experts generally consider the commonly chosen coverage limit of $100,000 as insufficient. Any visitor, invited or not, injured on the property is a potential high-dollar lawsuit.

#7: Insurance Score

Insurers have scoring systems they use to set premiums. Some of the criteria may be proprietary, but things like liens, judgements, or other adverse actions in the homeowners’ past can result in higher premiums.

#8: Marital Status

Though it is not recommended that someone get married just to save money, insurers tend to favor married homeowners with lower premiums. Decades of historical data seem to support the conclusion than unmarried homeowners experience more and higher insurance claims.

#9: Home Age and Construction

The age of the home and how it is constructed are major influencers of premium costs. Older homes tend to experience higher premiums. Some types of construction result in higher premiums due to past experience with the damage that results from common calamities.

#10: Pool, Tub. or Spa

If the home has an outdoor swimming pool, hot tub, or spa, premiums are likely to increase. Special fencing or other protective measures can reduce the amount of the increase, but there will be one in almost every case.

#11: Age of the Roof

Logically, the newer the roof the lower the premium. Roof repairs and replacement are common claims, and the older the roof the more the premium will increase.

#12: Distance to a Fire Department

The distance of a fire department from the home will factor into the premium. Sometimes the premium will also be influenced by whether the fire department is staffed or is a volunteer department.

#13: Credit History

This one is a surprise to some homeowners, as they know that insurance premiums will be escrowed, and they are not responsible for sending in payments. However, they must pay the mortgage payments to fund the escrow. Homeowners with poor credit can pay as much as double the homeowner insurance rates of those with excellent credit. Those with just fair credit scores can pay as much as a third more than homeowners with excellent credit.

#14: Claims History

Claims in the past are considered by insurance companies to be predictors of future claims, and rates will go up accordingly. A second claim for fire, water damage, liability, or theft can increase premiums by as much as 30% to 40%.

The bottom line is that homeowner insurance is not cheap, and it can escalate to extremely high levels based on these factors that insurance companies use to set rates.