One question that we get asked frequently when new clients come to us for their homeowners insurance …”Can you just give me a ballpark figure? I paid $xxxxxx for my house.”
The answer to that is not so straightforward. There are several variables that go into the pricing and quote you will receive.
Age of the Home
The older the home, the more likely it is to experience problems. Especially when home maintenance has been lagging, the home may have problems that the insurance company will take into consideration. Older homes may be built very well, but they are more likely to be damaged, which will raise the price of homeowners insurance.
The more durable a home, the less likely it will be to sustain damage. Wooden homes might be more “quaint” than metal or brick, but they are also less durable. A sturdier home will cost less to insure than will a more “fragile” one.
If the home is in a zip code with higher crime rates or more fires, the homeowners insurance rate will be higher. Also, the proximity to a fire hydrant plays a major role in the homeowners insurance rate. Homes closer to a fire hydrant are considered “protected” while those more than 1000 feet from a hydrant may be classed as “unprotected”.
If the home is in a floodplain, it may require a special rider and additional cost on the policy (or even a separate policy altogether) because most homeowners insurance does not include flood coverage.
Individual Claim History
Some individuals are either unlucky or simply prefer to use their homeowners policy instead of paying for issues that come up. While most people “buy insurance to cover claims”, you should know that those who have filed claims in the past, particularly a large number of claims, generally have higher insurance premiums than those who have a lower claims frequency.
Type of Coverage
One of the biggest factors in homeowners coverage is whether the homeowner wants “Actual Cash Value (ACV) coverage or Replacement Cost Coverage“. With ACV coverage, at the time of a loss, the homeowner will be reimbursed for the amount that the property is worth at the time of the loss. This takes into account depreciation, age of home and condition of the property. With Replacement Cost coverage, a homeowner is reimbursed for the amount it will take to replace or repair the property at today’s rate. It also usually covers any incendiary costs as well. Of course, replacement cost coverage costs more than ACV. Make sure you talk to your agent about which coverage is best for you.
Special Risk Factors
In some cases, there are special risk factors on the property that can affect the homeowners insurance premium. Fireplaces can increase the premium amount. On the other hand, smoke detectors, security systems and fire extinguishers offer discounts to premiums because they can reduce the risk of catastrophic loss.
From a liability standpoint, trampolines and swimming pools, while enhancing the entertainment value of the home, tend to increase the likelihood of incidents with injury and therefore can increase premiums. Also, the type of dogs that live in the home can create a greater risk and can increase premiums or may even affect the insurability of the proper deductible.
The deductible makes a significant impact on the cost of homeowners insurance. A higher deductible costs less but also means that you retain more of the risk associated with a loss. A lower deductible usually costs more but also means that you are out less at the time of a loss. The decision of a deductible amount is determined by the insured party’s risk tolerance level and ability to pay for the deductible should a loss occur.
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