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A homeowners insurance premium is a payment you make to an insurance company annually. In exchange, the insurer promises to reimburse you for certain losses.
Here’s what you need to know about homeowners insurance premiums:
- What is a homeowners insurance premium?
- How much does the average homeowners insurance premium cost?
- How is your homeowners insurance premium calculated?
- How homeowners insurance rates change
- How can you reduce the cost of your homeowners insurance?
- How to pay your homeowners insurance premium?
- What happens if you don’t pay your home insurance premiums?
What is a homeowners insurance premium?
The premium is the amount you pay to your insurance company each year to keep your home insurance policy active.
You might pay your annual premium up front in a lump sum, or pay a portion of it as part of your monthly mortgage payment. Many insurers allow quarterly or semi-annual payments as well.
How much does the average homeowners insurance premium cost?
The average annual homeowners insurance premium in the U.S. was $1,398 in 2021, according to the Insurance Information Institute (Triple-I). For its analysis, Triple-I used data compiled by S&P Global Market Intelligence.
Unfortunately, the national average cost of homeowners insurance doesn’t tell you much about what you can expect to pay since many factors affect premiums, including your location.
For instance, according to the latest data from the National Association of Insurance Commissioners (NAIC), the average homeowners policy in Arizona cost $850 in 2019, while the average policy in Florida cost $1,988.
How is your homeowners insurance premium calculated?
Your premiums are based on how likely you are to file a claim and the potential cost of that claim. The main factors that determine your homeowners insurance premium include:
- Location: The frequency and severity of natural disasters in your area affects your rates. For instance, you may pay higher premiums if you live on a wildfire-prone hillside or hurricane-prone coastline.
- Square footage: Larger homes generally cost more to insure.
- Age: Older homes generally cost more to insure as well. That’s because old homes are more prone to problems, and they may have historic features that would be expensive to replace.
- Construction type: A home with a more durable build (e.g., steel-framed or solid masonry) may cost less to insure than a less-durable home (e.g., wood-framed).
- Claims history: If your home has had a claim in the last three to seven years, you can expect to pay a higher premium.
- Insurance score: Insurers use this score to assess how likely you are to file a claim and charge you accordingly. A low insurance score might result in a higher premium.
- Deductible amount: You can lower your premiums by taking a higher deductible. Conversely, a lower deductible will result in higher premiums.
- Discounts: Features such as deadbolt locks, smoke detectors, a home security system, and a newer electrical system can lower your premiums.
- Swimming pools and hot tubs: These “attractive nuisances,” as the insurance industry calls them, create a liability risk. On top of that, they also need coverage against damage.
- Dogs: Owning a dog, especially a breed that’s perceived as more likely to bite someone, could increase your premiums.
How homeowners insurance rates change
Your homeowners insurance rate may change every year, and prices usually go up. However, your rate may decrease in some instances.
Why homeowners insurance premiums increase
- Your insurance score fell. Although insurance scores and credit scores are calculated differently, they’re based on similar information. If you fall behind on debt payments or start using more of your available credit, your homeowners insurance premiums might increase.
- You filed multiple claims. Filing more than one claim every five years, especially if the claim is for something you might have been able to prevent, can lead to higher premiums.
- You improved your property. Adding square footage to your home or upgrading to higher-quality materials means you’ll need more insurance.
- Crime rates increased in your ZIP code. If burglaries increase in your area, you may start paying more for your coverage.
- Building material and labor costs went up. Increased demand, supply chain disruptions, labor shortages, and general inflation can make it more expensive to rebuild a damaged home.
- Your insurer filed for an average rate increase in your state. Your insurance company may ask your state department of insurance for permission to raise rates across the board.
Why homeowners insurance premiums decrease
- Your insurance score rose. Maybe you paid down debt or got a credit line increase but didn’t use it. Perhaps an old, negative item like a foreclosure or bankruptcy dropped off your credit report.
- You installed a more resilient roof. Using impact-resistant roofing materials that reduce the likelihood of hail damage may qualify you for a discount.
- You modernized your home’s systems. Newer plumbing and electrical systems can reduce the risk of claims from water damage and fire.
- Your insurer filed for a rate decrease. Insurers don’t always ask the state to let them increase rates; sometimes they seek approval for a rate decrease.
- You’re retired. Retired homeowners tend to stay at home more often than younger, working adults. Since staying home may reduce the risk of burglary and major damage caused by undetected problems (like a leak or a fire), some insurance companies extend discounts to retired homeowners.
How can you reduce the cost of your homeowners insurance?
You can reduce the cost of your homeowners insurance in a few ways.
Checking with several companies each year when it’s time to renew your homeowners policy can help you make sure you’re getting the best value. Compare quotes for policies with identical deductibles and coverage.
Stay with the same company
If your insurer offers a loyalty discount, you may save money by staying with them. Still, shop around to be sure — don’t assume anything.
Raise your deductible
When you don’t have a lot of money saved up, you may need to settle for a low deductible to protect yourself. If you’ve accumulated more savings, though, consider paying a higher deductible to lower your premium.
If you get your home and auto insurance from the same company — and sometimes life insurance too — you may pay less overall by bundling the policies.
Add safety features
Installing certain safety features around your home can lead to a discount on your premium. Examples include storm shutters, sprinklers, a fence around your pool, or a burglar alarm and fire alarm system connected to your emergency services department.
Maintain good credit
Check your credit score occasionally. If it’s not already excellent, learn how to build it fast and effectively.
How to pay your homeowners insurance premium
If your mortgage lender requires you to have an escrow account (sometimes called an impound account), you’ll pay 1/12 of your annual homeowners insurance premium with your monthly mortgage payment. When your insurance bill is due, your mortgage servicer will use the funds in the escrow account to make the payment on your behalf.
If you don’t have an escrow account, you’ll pay your insurer directly by mailing a check, going through the insurer’s website, or using your bank’s online bill pay service. You can pay your entire annual premium at once, or you can make installment payments monthly, quarterly, or semi-annually if your insurer allows it.
What happens if you don’t pay your home insurance premiums?
If you don’t pay your home insurance premiums, your insurer will cancel your policy. If your home burns down the next day, you’ll have to come up with the money to rebuild it on your own, replace your possessions, and live somewhere else.
Your lender has the right to buy homeowners insurance on your behalf (and charge you for it) if you let your policy lapse or underinsure your home. This is called “force-placed insurance” and it may be more expensive and provide less coverage than other home insurance policies.
If you’re looking for a great rate on a home insurance policy, let Credible help. Credible (powered by Young Alfred) makes it easy to compare insurance rates from multiple lenders.
Disclaimer: All insurance-related services are offered through Young Alfred.