Although you may dread the bill when it comes, homeowners insurance is an essential part of home ownership that provides critical protection for your home and its belongings.
Home insurance rates can widely vary depending on a number of different factors, some of which may fluctuate over the life of the house and while others will remain the same.
If you’re buying a home or simply trying to understand how a home owners insurance company views your house in terms of determining your rate, in Part 1 of this 2-part series learn some of the more significant factors that affect insurance rates:
1. Replacement Cost
As with anything else that you might insure, the bulk of the premium is based on what it would cost to replace the item.
In terms of home insurance, there is a big difference between the value of a home and its replacement cost.
The cost of building your house again should it become completely destroyed may be much higher than its actual cash value or ACV since the costs of materials and labor are constantly rising.
It’s critical that the replacement cost part of your premium provide you with enough funds to actually rebuild rather than simply reflect actual cash value.
2.Home Age and Construction Type
Expanding on replacement cost and its effect on homeowners insurance rates, some types of construction are more expensive than others based on the cost of materials and labor plus other factors.
Although it might appear logical, some older homes can be more expensive to repair or replace than many newer homes if they are built using older methods or material that has become less available.
Home remodeling can definitely increase the value of your home and make it more comfortable and attractive.
It will also raise your home owners insurance rate to reflect that increased value and now an increased cost to replace all the remodeling that was done.
Make sure you have adequate coverage by alerting your agency whenever you’ve made improvements to your house so your coverage can be adjusted as needed.
4. Roof Condition
Your roof is a costly and important part of your house; if it is in bad condition and more of a home insurance risk, your premiums may be higher.
If your house has a newer roof in great condition, your rate may be slightly lower.
You may also see a reduction if your roof is covered in roofing materials designed to withstand certain high-risk conditions in your area.
5. Home Location
Another significant factor that affects your home owners insurance rates is where your home is located. Factors include its proximity to a body of water, location in a flood plain or hurricane zone, location where destructive winds are common, and a number of other similar factors.
If your house is located in or near a flood zone, flood insurance is strongly suggested, especially since many flood maps are outdated and homes could be at greater risk than it may seem.
6. Proximity to A Fire Department
Reduced risk and a decreased chance of a total loss should a fire happen at your house can mean slightly lower homeowners insurance rates.
If your house is close to a permanently staffed fire station or there is a fire hydrant close to your house, you will often have a lower premium than if your home was located further away from those who can put out a fire and prevent more damage from happening.
Home Owners Insurance Rates - A Complicated Calculation
It’s easy to question why home insurance costs so much these days, yet the factors involved in calculating your rate are many.
Much of the cost of any home owners insurance premium is based on replacement cost, which is driven by the cost of materials and labor, and the degree of risk that your house could be damaged.
These are just some of the factors that can affect your homeowners insurance rate. Learn more in What Factors Affect My Texas Home Insurance Rates - Part 2 of this series!