Top Factors That Affect Your Home Insurance Rates

How Location Affects Your Rates

Where your home is located is one of the biggest factors insurance companies use to calculate your rates. Homes in rural areas generally have lower rates than homes in urban areas. Urban areas tend to have more crime, which increases risk. Large metro areas also have more cars and traffic, leading to a higher chance of accidents. 

Natural disasters like hurricanes, tornadoes, floods, earthquakes, and wildfires are also more common in certain geographic locations. Areas at high risk for these disasters will have higher insurance rates to cover the potential for catastrophic damage. Coastal regions in hurricane zones or homes near earthquake fault lines typically have the highest rates.

Insurers gather data at the ZIP code level to determine risk factors by location. If you live in an area with higher crime, more severe weather, or other risks, expect to pay a premium for home insurance. Moving a few miles away to a lower-risk ZIP code could potentially save you money on your policy.

Some ways location affects rates:

– Urban vs. rural areas 

– Natural disaster risk

– Crime rates

– Population and traffic density  

– Proximity to fire hazards like forests

– Coastal regions prone to hurricanes

Check if your home is in a high-risk area for any perils to understand why your rates may be higher than average. While you can’t change your location, being aware of the risks in your area can help explain the cost of coverage.

Home Value

A home’s value often has a major impact on insurance premiums. In general, more expensive homes cost more to insure because if there is a covered loss, the insurance company may have to pay out more in claims. Factors that contribute to a home’s value include its size, features, age, location, school district, neighborhood, and overall real estate market conditions.

Premiums for high-value luxury homes are often disproportionately more than moderately priced homes. Some insurance companies set rate tiers based on home value, so passing into a higher tier threshold can sometimes lead to a premium spike even if the value only increased marginally. Older, lower-valued homes may be cheaper to insure if they are located outside of riskier urban zones. Overall, homeowners with more expensive properties will want to shop around to find the best rates.

Age of Home

The age of your home is an important factor that insurance companies use to calculate your rates. Generally, newer homes built within the last 25 years often qualify for lower premiums. This is because new construction is built to modern building codes with more resilient materials, features like impact-resistant windows, and up-to-date electrical, plumbing, HVAC and roofing systems.

Older homes often cost more to insure because they may not meet current building standards and are seen as higher-risk. Materials and components like roofing, siding, insulation and wiring degrade over time. Older homes are also more prone to issues like lead pipes, knob and tube wiring, asbestos, leaks, drafts, and other maintenance problems that could lead to a claim.

Insurance companies classify homes into different age brackets, with newer homes getting the most discounts. For example, some insurers offer up to 15% lower rates for new-built homes vs. homes over 50 years old. The biggest rate impacts are often seen around the 40-50 year marks as key systems like the roof and appliances near the end of their lifespan. 

While you can’t change the age of your existing home, regular maintenance and upgrades like roof replacement, electrical and plumbing updates can offset some of the risk of an older home. Shopping insurance rates from companies who offer better discounts for older, well-maintained homes can also potentially save on premiums.

Credit Score

Your credit score plays an important role in determining your home insurance premiums. Insurance companies view credit scores as an indicator of how responsible you are financially and how likely you are to file a claim. 

People with higher credit scores are seen as less risky to insure because they tend to manage their finances responsibly. As a result, most insurance companies will offer lower premiums to customers with good or excellent credit.

On the other hand, if you have a low credit score, you may be charged higher premiums or even denied coverage altogether. This is because you’re considered a higher risk client. Multiple late payments, bankruptcies, foreclosures and collections can negatively impact your credit score.

Insurers don’t base premiums solely on credit scores. But it’s one of the key factors that can cause your rates to go up or down. Improving your credit can potentially lower your insurance costs. 

Monitoring your credit report and maintaining on-time payments will help boost your score over time. It’s a good idea to check your credit score at least once a year. If there are any errors on your report, make sure to get them fixed right away. This can positively influence your insurance rates.

Overall, keeping a high credit score demonstrates financial responsibility. Insurers reward this with lower premiums. So monitoring and improving your credit is an important step to potentially saving money on home insurance.

Claims History

Filing claims for damage or loss will often result in an increase in your home insurance rates. Claim activity informs your insurance company of the risk associated with insuring your home. Insurers use your claims history to determine the likelihood future claims will be filed. The more claims you file, the higher risk you are deemed and the more you can expect to pay in premiums. 

This is why it’s recommended to avoid filing small claims that are less than your deductible amount. The increase in your premiums over time often outweighs the claim payment. It’s also important to take measures to prevent claims. Things like maintaining your home, installing protective devices, and following safety practices can help avoid the need to file claims in the first place.

Discounts

One of the best ways to lower your home insurance premium is by taking advantage of available discounts. Most insurance companies offer a variety of discounts that can reduce your rates by as much as 30% or more. Here are some of the most common home insurance discounts to look out for:

Multi-Policy Discount: Also known as bundling, insurers offer a discount when you purchase multiple policies from them, such as home and auto insurance. This incentivizes loyalty and gives them more business.

Security System Discount: Installing a security system like burglar alarms, fire alarms, carbon monoxide detectors can earn you a discount of 5-15%. Some insurers require the system to be professionally installed and monitored.

Safety Feature Discounts: Things like deadbolt locks, smoke detectors, fire extinguishers, sprinkler systems etc can get you a lower premium.

Long-Term Customer Discount: If you’ve been with an insurer for 3-5 years they may offer you a loyalty discount. This varies by company but can be around 5-10%.

Renovation Discounts: Upgrading your electrical, plumbing, roofing, HVAC system to modern standards can qualify you for a lower premium as it reduces risk.

Good Credit Discounts: Most companies offer discounts for good credit, typically around 10%. Maintaining a solid credit score helps demonstrate you’re financially responsible.

Annual Premium Discount: Opting to pay for your policy annually rather than in monthly installments may qualify you for a discount of up to 10%.

Taking the time to inquire about available discounts, making a few home upgrades, and bundling policies are great ways to secure a lower home insurance rates. The savings can really add up over time, making it well worth the effort.

Renovations That Can Lower Your Premiums

Home upgrades and renovations can sometimes lead to discounts on your homeowners insurance premiums. Insurance companies view certain renovations as lowering the risk of damage or accidents. Here are some of the most common home upgrades that may reduce your rates:

Roof upgrades: Replacing your roof with impact-resistant materials like metal, tile, or high-quality composite shingles can qualify you for discounts in some areas prone to hail or high winds. Always check with your insurer first.

Electrical upgrades: Upgrading your electrical panel, wiring, and outlets to meet modern safety codes can reduce fire risks. Insurers may provide discounts for modernized electrical systems.

Plumbing upgrades: Replacing old steel pipes with copper or PEX piping can reduce risks of leaks, bursting, and water damage, which may lead to discounts. Upgrading to low-flow toilets can also help.

Security system installation: A monitored security system with cameras, motion sensors, and alarm capabilities can deter burglaries and vandalism. Insurers often reward added security with lower premiums.

Smart home devices: “Smart” smoke detectors, water leak sensors, freeze detectors, and other connected safety devices provide you added protection and may earn you a discount. Check with your insurer.

Impact-resistant windows/doors: Upgraded windows, doors, and hurricane shutters help protect against damage from storms and extreme weather events. Fortifying your home may result in savings.

When planning renovations, check with your insurance agent to see if any upgrades would qualify you for premium discounts. Safety-focused updates are your best bet for potential savings.

Deductible

Choosing a higher deductible is one of the easiest ways to lower your home insurance premium. A deductible is the amount you pay out-of-pocket before your insurance kicks in. 

For example, if you have a $1,000 deductible and experience a covered loss of $5,000, you would pay the first $1,000 and your insurance would cover the remaining $4,000.

Insurance companies offer lower rates for higher deductibles because you are sharing more of the risk. If you have savings set aside or can afford higher out-of-pocket costs in the event of a claim, selecting a higher deductible makes financial sense.

Some typical deductible amounts are $500, $1,000, $2,500, and $5,000. Going from a $500 deductible to $1,000 can reduce your premium by 10-20%, while increasing to a $2,500 deductible may save you 25% or more. Just make sure you have the funds available to cover the higher out-of-pocket costs if needed.

Review your finances and risk tolerance. If you can handle a higher deductible, request quotes at different levels from your insurance agent. In many cases, the premium savings outweigh the risks. Just be prepared in case you need to pay more in the event of a claim.

Usage

The way you use your home can significantly impact your insurance rates. Here’s how:

Primary residence – Living in the home as your primary residence is the most common usage type. Insurance rates are lowest for primary residences since there is generally less risk associated with damage when people live in a home full-time. Primary residence rates reflect standard homeowners insurance pricing.

Rental property – Insuring a home that you rent out to tenants will be more expensive. Rental properties are seen as higher risk by insurers since tenants may not treat the home as well as an owner would. There is also increased liability risk with tenants. Expect to pay 15-25% more for rental property coverage versus a primary residence.

Vacant – Homes that are unoccupied for an extended period of time pose added risks, like vandalism and fire damage. Plumbing or electrical issues may also go unnoticed. Insurers will significantly increase premiums for vacant home coverage, often by 50% or more compared to a primary residence policy. Some insurers may not offer coverage for vacant properties at all due to the added risks.

The way you utilize your home can make a big difference in insurance rates. It’s important to notify your insurer any time the usage changes from a primary residence to a rental or vacant property so they can adjust coverage and pricing accordingly.

Policy Limits

Your home insurance policy has limits on the amount of coverage provided for your dwelling, personal property, loss of use, personal liability, and medical payments. Choosing lower policy limits is one way to reduce your premiums.

Lowering liability or dwelling coverage to save money

Most insurance companies require a minimum of $100,000 for personal liability coverage, which protects you if someone is injured on your property and decides to sue. But you may be able to opt for a lower limit like $50,000 or $25,000 to reduce your premium, depending on your assets and income. Just keep in mind you’d be responsible for any amount over your liability limit if you’re sued.

You can also lower your dwelling coverage, which pays to repair or rebuild your home if it’s damaged. A common recommendation is to insure your home for at least 80% of its replacement value. But you may be able to get by with less coverage if you’re willing to pay some costs out of pocket in a major loss. Just make sure you have enough to rebuild the essential parts of your home. Lowering dwelling coverage too much leaves you at risk of being underinsured.

Discuss with your insurance agent how much you can save by opting for lower liability and dwelling limits. They can help you find the right balance between saving on premiums and maintaining adequate protection.