Home insurance is often a non-negotiable budget item, especially if you have a mortgage. And though it’s unlikely you can or should forgo this financial obligation, there are easy steps you can take to ensure you’re getting the lowest premium possible for the coverage you need.
Below, we’ll explain some of the factors that affect your home insurance rate and share eight ways to reduce your costs.
Understanding your home insurance premium
Home insurance companies consider lots of criteria when you apply for a policy. These rating variables are used to determine the risk of insuring your home, and therefore, how much you should pay for coverage.
Here are some of the main factors that insurers use to calculate home insurance premiums:
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Home replacement cost. One of the primary factors used to determine your insurance premium is your house’s replacement cost, or how much it would cost to rebuild your home based on material and labor costs.
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Location. Your state, city, and ZIP code have a significant impact on the cost of your homeowners insurance policy. Homes tend to be more expensive to insure in high-risk areas, such as those prone to natural disasters, high construction costs, or significant crime levels.
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Home characteristics. Your home’s unique characteristics, like the age, square footage, roof type, and building materials used, will affect your insurance premium. Your home's current value can also impact the cost.
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Proximity to a fire station. How close you live to a fire station or the distance to the nearest fire hydrant can be considered when calculating home insurance premiums.
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Claim history. Insurance companies consider your personal insurance claim history when determining rates. If you’ve filed any property claims in the past, you might pay a more expensive premium. Your insurer may also factor in the property’s claim history, even if you weren’t living there when the claims were filed.
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Coverage limits. Home insurance premiums depend on your coverage limits. The higher your coverage limits are, the more expensive your premium will be. But keep in mind that being underinsured has its own financial risks if you have a loss.
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Deductibles. The dwelling, other structures, personal property, and loss of use coverage of your home insurance policy are subject to a deductible. Your insurer will subtract your deductible from your claim, and you’ll need to pay that portion out of pocket when making repairs or replacing damaged items. If you choose a higher deductible, you’ll have a lower premium, and vice versa.
Top 8 ways to reduce your premium
Home insurance premiums can be expensive, but there are ways to save money. Check out these tips to reduce homeowners insurance costs.
Maintain good credit
In most states, insurers can use your insurance-based credit score when establishing your rate. This score relies on many of the same factors used in your home credit score, including your repayment history and existing debt.
In general, homeowners with excellent or good credit pay lower rates than people with poor credit. That’s because insurers see homeowners with poor credit as a higher risk and more likely to file a claim. By improving your credit and maintaining a good score, you might be able to lower your home insurance premium.
Shop around
Home insurance rates also vary by insurer, sometimes significantly. It’s a good idea to shop around and get at least three personalized home insurance quotes from different carriers. As you shop for rates, make sure that you get quotes for the same type and amount of coverage and, when possible, the same deductible.
As you review quotes, take note of price as well as other key factors, such as an insurer’s financial strength, customer reviews, and unique coverages or benefits offered.
Comparison shopping can help you find the most affordable home insurance policy tailored to your specific needs.
Look for discounts
Taking advantage of home insurance discounts can help you get a lower premium. The exact discounts and savings potential will vary depending on the insurer, but common ones include:
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Paying your annual insurance premium in full
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Having no recent insurance claims
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Installing protective devices, like fire alarms and a security system
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Bundling home insurance with another policy
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Insuring a new home
Improve home security
Home security is a factor that insurance companies consider when calculating premiums. One way to potentially save money on home insurance is to improve your home’s security by installing fire alarms, a sprinkler system, or a home security system.
Home insurance companies often provide a discount to customers who install these protective devices in their homes. If you can reduce the chance of a claim occurring or the severity of a claim, you may be able to lock in a lower premium.
Make disaster-resistant upgrades
If your home is located in an area that experiences severe weather, like wildfires or hurricanes, making disaster-resistant upgrades can help you save money on homeowners insurance.
For example, some home insurance companies will lower your premium if you install storm-proof windows and storm shutters, or replace the siding of your home with non-flammable materials, like stone or cement.
You might also be able to save money on home insurance if you replace your roof with a material that’s less likely to get damaged from high winds and intense storms, such as metal.
Raise your deductible
When you purchase a home insurance policy, you’ll select a deductible. The deductible is the portion of the claim you’re responsible for paying out of pocket, and it gets subtracted from your claim settlement.
Your deductible has a direct impact on your premium. The lower your deductible is, the higher your annual premium will be. If you want to save money on homeowners insurance, consider choosing a higher deductible, as long as you’re ok with a lower payout if you have a loss.
Review your coverage needs annually
Every homeowner has different coverage needs, and how much home insurance you need can vary over time. To ensure you’re always getting the lowest home insurance premium, it’s a good idea to review your coverages each year.
For example, if the replacement value of your home has decreased since you bought it, you might be able to lower your dwelling coverage limit. Or, if you’ve recently downsized and sold or given away a lot of your personal belongings, you might consider reducing your personal property coverage limit.
Tip: Lowering your coverage limits will help you save money on home insurance, but always weigh the pros and cons to ensure you’re not underinsured.
Bundle your policies
One of the most effective ways to save money on insurance is to bundle your policies. Most insurance companies provide a discount when you bundle home insurance with auto insurance, RV insurance, boat insurance, or another product.
While policy bundling discounts often translate to big savings, the actual amount you can save depends on the insurance company. If you’re interested in bundling your home insurance with another policy, consider shopping around to see which insurer has the most generous discount.