For most, your home is the largest single investment you will ever make. The cost of insuring your home can seem, well, pricey – particularly when compared to auto insurance. After all, houses don’t roll or get involved in accidents. Your home insurance is made up of several parts that can affect your rates. Let’s discuss some of the biggest factors that drive premiums.
Insured Value
One of the largest single factors in home insurance rates is the cost of rebuilding the home itself. If you bought your home decades ago for $120,000, it’s highly unlikely that you can rebuild your home for $120,000 today. Typically, you’re insuring for the cost it will take to rebuild the same house today as opposed to the market price or what you paid for your home years ago. This is a good thing. Insuring based on market values that go up and down or based on purchase price could leave you with enough money to only rebuild half your house after a fire or another covered loss. Understandably, when you insure for a higher value, that usually means rates will be a bit higher as well.
In addition to insuring to rebuild your house, you probably have contents insurance, also called Personal Property Coverage. In most cases, the value of your personal property is insured for 50% to 75% of the insured value of your home. For example, a home insured for $400,000 might also have $200,000 or $300,000 in contents coverage to insure your belongings.
Risks
Insurers also consider risks when determining rates for home insurance. Literally, hundreds of data points can be considered when establishing rates. Homes that are coastal areas in the south likely pay higher rates due to the increase in catastrophic disasters like hurricanes. Homes far away from a water source might pay higher rates due to fire risk, and newer homes with safety features may receive discounts or special rate considerations.
Insurers also look at the homeowners themselves, considering factors such as credit history, claims history, and even your driving record – yet another reason to drive safely. Rules vary on which types of consumer information can be used to determine insurance rates, but insurers are trying to understand your unique risk factors so they can assign an appropriate premium.
Saving on Home Insurance
There are ways to reduce your overall insurance expenses through bundling home and auto insurance with one insurer or by qualifying for discounts. If you haven’t reviewed your coverage with your broker recently, we encourage you to set up a time to do a review. Our insurance needs change many times during life’s journey. You may discover some risks that weren’t fully covered, providing an opportunity to fix any coverage gaps, and you might even find some new discounts or other creative ways to help keep those premiums in check.