Your home’s location, construction and condition, as well as your credit and claims history, all play a part in how much you pay for home insurance. Insurance companies assess risk in different ways, so it’s important to compare homeowner insurance quotes to be sure you get the most affordable rate. “It’s about knowing your risk, and what you can do to minimize that risk,” says Lynne McChristian, Florida representative for the Insurance Information Institute.
Here are 16 key factors that influence your home’s insurance rates.
- Replacement cost
- Dog breed
- Wood-burning stoves
- Home-based business
- Home liability limits
- Insurance score
- Marital status
- Age and construction of home
- Swimming pool or hot tub
- Roof condition
- Proximity to fire station
- Location and how close you are to a body of water
- Credit history
- Claims history
Replacement cost of your home
Under-insuring your home’s value is perhaps the biggest mistake homeowners make when insuring their homes. Not having enough coverage can lead to financial pain if the worst happens.
“If you under-insure your place, you’ll likely be in for a bad shock,” warns William F. Harris, an independent insurance agent in Los Angeles. “Nobody wants that kind of surprise.”
Replacement cost is the amount of money to build the exact same home where it stands now. This is different than a home’s market value. Market value includes other things, such as the land’s value.
Harris and United Policyholders, a consumer advocacy group, say most people only buy enough insurance to cover the mortgage, which usually is no more than 80 to 90% of the house’s value, depending on the down payment. That figure may be even lower if the property has appreciated in value.
So, what can you do to guarantee you’re properly covered? Amy Bach, United Policyholders’ executive director, suggests hiring a professional appraiser to get an accurate replacement figure. The cost usually runs from $200 to $400, but it can be worth it. Harris notes that some insurers send their own appraiser as part of the coverage process. However, it’s always good to have your own estimate.
“That could be very helpful in the settlement process” if your home is destroyed or damaged, he says.
Home insurance deductibles
A deductible is the amount you pay toward a loss before your insurance company pays a claim. Choosing the right deductible amount is a significant decision. The higher the deductible, the more money you save on premiums.
Michael Barry, a spokesman for the Insurance Information Institute, says that most insurers recommend a deductible of at least $500. But keep in mind that by raising that to $1,000, you’ll likely save as much as 25% on your policy, according to the III. Our “Homeowners insurance deductibles: How to choose the right one” article provides rates by state and shows the savings earned with a higher deductible.
But the institute adds that, depending where you live, you may have other deductibles to consider when balancing your financial situation with the need to protect your house.
“If you live in a disaster-prone area, your insurance policy may have a separate deductible for certain kinds of damage,” the III points out. “If you live near the coast in the East, you may have a separate windstorm deductible; if you live in a state vulnerable to hail storms, you may have a separate deductible for hail; and if you live in an earthquake-prone area, your earthquake policy has a deductible.”
Type of dog you own
You love your dog, but insurers may not be quite as enamored.
The liability portion of your insurance helps to protect you if you’re sued by someone who is attacked or bitten by your dog. The III warns that some insurers won’t insure homeowners who own certain breeds of dogs considered dangerous, such as pit bulls and Rottweilers. Others decide on a case-by-case basis, depending on whether an individual dog, regardless of its breed, is seen as vicious.
To qualify for a policy, homeowners may be required to sign liability waivers for dog bites. Other insurers cover a pet if the owner takes the dog to classes to modify bad habits or if the dog is routinely restrained with a muzzle, chain or cage, says Loretta Worters, another III spokesperson.
She recommends having details about your dog — including its breed and history — ready when discussing your policy needs with an insurance agent.
You may also want to shop around for a policy if you have a dog that’s a so-called “aggressive breed.” Some insurers will increase your rates, while others won’t. We found that the average home insurance rate for an aggressive breed is only .3%.
A wood-burning stove can be very atmospheric and reduce energy costs. But they can also raise your homeowners insurance premiums.
You may be able to avoid or reduce premium jumps by providing your carrier with proof that the stove was installed by a licensed contractor and meets code requirements. Also, Harris suggests installing a smoke detector not far from the stove, along with detectors in other parts of your house. Further, let your agent know if you have a fire extinguisher that’s easily accessible.
“See this as an opportunity to make your home safer,” he says. Wood stoves increase home insurance rates by 2% on average.
Barry says it’s probably a good idea to take steps to protect equipment, supplies and anything else that is attached to you home-based business. Here are the most common options, according to Barry:
Purchase an “endorsement” to your existing policy. Your insurer may offer an endorsement that adds additional property coverage and some limited liability coverage. The III says that you may be able to double your standard policy limits for business equipment from $2,500 to $5,000 for less than $20 a year. This option is usually limited to businesses that have less than a set amount of annual receipts, usually around $5,000.
Buy a specific in-home business policy. Some insurers sell specific in-home business policies with some of the same features as larger commercial policies but with lower policy limits and at a lower premium. With this coverage, generally at a price of less than $300 a year, you can insure your business property for $10,000. The policy includes general liability coverage with the limit you choose, between $300,000 and $1 million.
Also, if you have to close your business because of damage to the home, the in-home policy will cover the income that the business loses and ongoing expenses, such as payroll, for up to one year. The policy also provides limited coverage for loss of valuable documents, accounts receivable, offsite business property and use of equipment.
Any remodeling, whether it’s a bathroom, kitchen or whatever, will likely raise the home’s value. With that in mind, the III says you need to have the increased value reflected in your policy. Keep your insurance agent aware of the status of any improvements.
At its personal finance website, Wells Fargo notes that “it’s expensive for you to build, and it’s expensive for the insurance company to rebuild in case of a loss. Materials and construction costs will be taken into consideration and it may increase your premium, but at least your coverage will be up to date.”
Home liability limits
Personal liability limits should be carefully considered. Insurers say that most people buy policies with $100,000 in personal liability insurance, which tends to be inadequate. The amount could easily be used up due to medical expenses and possible lawsuits if someone was seriously injured in your home.
With that in mind, insurance experts recommend limits of at least $300,000. The medical payments portion of liability has its own limits; the amount of medical payment coverage you can buy varies by insurance company, but at least $5,000 is usually recommended.
If you have assets above $500,000, you should see whether a separate umbrella policy would make sense for you.
Your insurance score, which is similar to your credit score, can significantly affect your premiums, even the ability to secure a policy. People with low insurance scores may be seen as a financial risk by insurers, much the same way lenders look at those with poor credit numbers.
To better ensure a good insurance score, the III and most insurers suggest three steps, which are similar to maintaining good credit:
- Avoid having debt that is in default.
- Carry modest credit card balances. Be sure to pay them in full each month if possible.
- Never have a tax lien, court judgment, your salary garnished or a bankruptcy on your record.