11 factors that impact home insurance premium

Wed Mar 21 2018

Five stacks of coins with a model house on top of every other stack.

There are many factors that determine the cost of homeowners insurance. Home characteristics, such as building age and materials, affect pricing. Your credit score and insurance claim history play a part. Even the neighborhood you live in could impact home insurance costs.

Let's look at the 11 factors that influence homeowners insurance costs and some benchmarks to reference when searching for yourself.

According to a study done by ValuePenguin, homeowners insurance costs $1,083 on average in the United States. We expect this number to rise, especially considering that rates have increased more than 50% since 2008. Yikes.

Insurance costs vary widely from state to state, though. The cheapest states for insurance are Oregon, Idaho, and Utah, where annual costs are $574, $590, and $634, respectively. Each is more than 40% lower than the national average!

Average costs for Florida and Texas

On the other end of the spectrum sit Florida and Texas.

Florida has the nation’s highest home insurance costs, with average annual costs coming in at $2,055, or 90% higher than the national average. Factors affecting the costs of homeowners insurance in Florida include hurricane deductibles and potential for windstorm damage.

The Lone Star state isn’t much better, having the nation’s second-highest home insurance costs. Annual premiums cost $1,947 on average, or 80% higher than the national average. Similar to Florida, severe weather like hail storms, hurricanes, and tornadoes drive Texas’ high premiums.

Factors affecting home insurance costs

1. Weather

Florida and Texas have the highest home insurance premiums due in no small part to the likelihood of catastrophic weather events. Both states are prone to hurricanes, as we saw in 2017, while Texans also face tornados and hailstorms. This vulnerability drives up premiums, before we get to factors that homeowners can control.

Other location-related factors driving home insurance costs include:

2. Population

Living in a densely populated area can affect insurance premiums for two reasons. First, highly populated areas like cities tend to have higher construction costs. Since home insurance costs (specifically, Coverage A) correlate with replacement value, higher populated areas tend to have higher costs.

However, home insurance rates also correlate with area fire suppression capabilities. Densely populated areas tend to require more capability (e.g. firefighters, fire hydrants, equipment). Homes that are located near permanently staffed fire stations tend to have lower rates. This is more likely in densely populated areas.

3. Neighborhood

Insurance companies consider the neighborhood’s claims history and crime rate when determining rates. Neighborhoods with high claims filings will see higher rates (companies will consider the area a riskier place to insure). Meanwhile, insurers also assume that a neighborhood with a higher crime rate is likely to result in more instances of personal property damage. While zip code tends to be the most common way to analyze neighborhoods, companies can vary rates down to the street.

4. Proximity to risk factors

Homes that are located near higher-risk areas (those that could lead to insurance claims) can see higher insurance costs. For example, a remote home located on the edge of the woods could be seen as having a higher risk of forest fire damage. Similarly, a home located on a large stream or river could be seen as having a higher risk of flood damage.

Personal factors

Insurance companies will next look at the person applying for home insurance when determining costs. Just as with location, every person comes with their own financial history and personal situation that affect their risk. When applying for home insurance, companies will look at:

5. Credit

Most states allow insurance providers to check a person’s credit history when determining their home insurance costs. Providers use credit scores to calculate an insurance score, which is used to predict the likelihood of a person filing a claim.

The factors that determine insurance scores are similar to credit scores, such as credit history, on-time payments, outstanding debt, and number of credit accounts. A positive insurance score can help lower your monthly home insurance premiums.

6. Personal belongings

The value of your personal belongings impacts home insurance costs. Personal property insurance protects possessions, though typically there are restrictions. The coverage limit that you choose can change your premium - if you have more valuable personal belongings, you’ll want more coverage, which means a higher premium.

Higher costs can also result from homeowners electing for scheduled personal property coverage, which is used to list out high-value items (e.g. art, furs) that need to be covered.

Home-related factors

Naturally, home insurance companies will review the home being insured when determining a quote. If you’re looking to calculate a quick ballpark estimate of your homeowners insurance cost, divide the value of your home by 1,000, then multiply that amount by $3.50.

Of course, more than the value of your home is considered when it comes to insurance costs. Providers will also take a look at:

7. Home characteristics

Several characteristics of your home can affect home insurance costs, including:

  • Age: Older homes that haven’t been renovated can carry higher risks due to its older infrastructure, such as older building materials, roofing, piping, and wiring. This isn’t true all the time, though; if your home was built during a time with strict building standards, your home’s age could work in your favor. Think, “they just don’t make them like they used to.”
  • Amenities: Additional structures on your home, such as separate garages, sheds, and swimming pools, carry their own set of risk factors, which can raise overall home insurance costs.
  • Value: The higher your structure’s value (and thus, cost to replace), the higher the insurance costs are to cover it.

8. Framing type

According to a ValuePenguin study that examined framing types in California, Oregon, and Texas, brick/masonry and brick/masonry veneer framing saw a 5 to 10% decrease in home insurance costs compared to the overall average. On the other hand, homes with a log/wood framing type saw a 13% increase compared to the overall average.

Insurance factors

9. Deductibles

Monthly premiums and deductibles have an inverse relationship: the higher you’re willing to pay by the month, the lower your deductible. Some homeowners may opt for the opposite, preferring a lower monthly premium for a higher deductible.

Though lower premiums will save homeowners money in the short-term, keep in mind that in the event of an accident, more money will have to be paid upfront before the insurance company will step in. A good rule of thumb is to never choose a policy that has a deductible higher than you can pay on short notice.

10. Home's claims history

Insurance providers will look at the home’s entire claims history, which includes claims filed by you and any previous owners. Home insurance costs can rise if more than one claim has been filed on a home over a 10-year period.

11. Home insurance discounts

Homeowners often times have the ability to lower their home insurance costs through discounts offered by their providers, such as:

  • Bundling: Some providers will give discounts if you purchase more than one type of insurance from them (e.g. auto and home insurance).
  • Claims-Free: Home insurance providers can give discounts to homeowners who don’t file claims. In some cases, the percentage may be so great (up to 20%) that it may be worth it to homeowners to pay for expenses out-of-pocket.
  • Loyalty: Homeowners in good standing with their provider can be awarded discounts after staying with them for a number of years.
  • Home Improvements: Insurance companies may offer discounts for homeowners who make renovations or update older infrastructure such as piping and wiring.
  • Payment Options: Setting up automatic payments or paying in-full can result in small discounts.
  • Personal Factors: Some providers even reward non-smokers and retirees with discounts due to posing lower risks than others. Retirees, for instance, are home more and more likely to spot a problem before getting too serious.

When shopping for a new insurance provider, remember to ask about eligible discounts and their amount. Percentages may vary from provider to provider, which can impact overall costs.

Yes, many factors go into determining home insurance costs, from personal financial history to the home’s location to the home itself. While it’s possible to get an idea of the costs for your home from current state averages, every case is different. You may be qualified for certain discounts, or find that different providers treat factors different.

In other words, every homebuyer should shop around before settling on an insurance provider. Fortunately, homeowners don’t have to search for home insurance quotes alone. Independent agents can help with comparing providers and offer insights into the best option. Providers have agents and customer reps to answer questions.


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