Homeowners insurance premiums

In order to keep your home insured, you need to pay monthly or annual premiums to your insurance company. Read on to learn more about premiums.

Pat Howard 1600

Pat Howard

Published November 27, 2018

In order to keep your home and your stuff insured, you make monthly or annual payments to your homeowners insurance company. Your payments, or premiums, are generally paid in one of two ways: by you directly or through an escrow account set up by your mortgage company.

Unlike health insurance, which involves premiums, deductibles, copays, and general out-of-pocket expenses, the cost of homeowners insurance is a little more cut and dry, as you’re referring specifically to your policy premiums and your deductible.

Your premiums are determined by how likely you are to file a claim — the higher risk you are, the higher your premiums will be. Some of the main factors in determining your premiums are your level of coverage; the location, size, build and age of your home; how high or low your deductible is; and your insurance score. Premiums also may spike regardless of where you live or your individual circumstance, as rates have gone up around the country because of insurers’ unprecedented losses in recent years.

Read on to learn more:

How homeowners insurance premiums are determined

There are a number of factors that determine how much you pay in premiums; some of these factors you can control, and some you cannot control. While you may not necessarily want to base your home-buying decision on what gets you more favorable insurance premiums, understanding how companies set their rates will go a long way in helping you understand your bill and potentially get those rates back down.

Your coverage amounts

Your premiums are directly correlated with how much insurance you have for your home — generally speaking, the more robust your coverage is, the higher your premiums will be. So if your home has replacement cost dwelling and personal property loss-settlement provisions, a number of additional coverages, increased personal liability limits, and high sublimits for expensive valuables, you’re going to have to pay more than you would if you were insured by a standard policy with basic coverages.

Your home’s location

One of the biggest indicators of insurance cost is the location of your home. A home in a wildfire or tropical storm-prone area, or a home that’s a considerable distance from a fire station, or a home in a densely populated region, are generally going to be more expensive to insure than a home in an area that poses less risk.

The size, age, and build of your home

If you live in a 5,000-square-foot home, your premiums are probably going to be higher than if it was only 2,500 square feet. The larger your home is – the more dwelling coverage you need – the higher your premiums will be.

The age and build of your home also play a role in how your rates are determined. Older homes are generally viewed as riskier to insure, as build materials for the frame, foundation, plumbing, and wiring may be obsolete and are more likely to incur losses than modern builds.

But just because a home is old, that doesn’t necessarily mean that it poses more risk than a new home. Ultimately, the home’s insurability depends on how its built. Sure, your home may be new, but if it’s constructed with a timber frame and you happen to live smack dab in the middle of Tornado Alley, the chances of you suffering a total loss on the home are greater than, say, your next door neighbor’s concrete home that’s fitted with a bomb shelter.

Your insurance score

Another factor that determines your homeowners insurance premiums is your insurance score, which measures how statistically likely you are to file a claim. The methodology for determining your insurance score may vary from carrier to carrier, but your score is typically calculated by combining various risk factors — your credit score, your claims history, and whether or not your home is fitted with safety features like a burglary alarm or storm shutters. The lower your insurance score is, the higher your premiums will be.

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Factors that affect your premiums

Once your policy term is winding down, your insurer will send you a renewal statement, which is basically an insurance checkup. At that time, you’ll look over your current level of coverage and determine if you need more or less insurance. However, maybe you don’t and are perfectly fine with your current level of coverage.

But just when you’re about to renew your policy with the same coverage amounts like you do every year, you notice that your premiums went up, or maybe you got lucky and they went down. We’ll go over why that happened:

What increases premiums

If you’ve never filed a claim or only file claims for significant losses, like theft or because a tree fell on your house, your insurer probably won’t penalize you with a higher rate. But if you’ve filed multiple claims, or the loss was caused by interior issues like plumbing or bad wiring, you may see higher rates on your next bill.

You may also see an uptick in rates if you live in a state or region that just experienced a costly storm or natural disaster, even if you weren’t directly impacted by the destruction.

What decreases premiums

If your premiums went down, that may be because you renovated an old section of your home that was basically an insurance claim waiting to happen, or maybe you took advantage of some of the discount opportunities offered to you by your insurance company. If your home is fitted with one or more of the following features, you may see a sizeable discount on your policy’s declarations page:

  • Smoke alarms
  • Burglar alarms
  • Deadbolts on doors
  • Fire extinguishers
  • Storm-proofing your windows, doors, and roof

You should also look into bundling your home and auto insurance if that’s offered to you by your carrier. If you’re interested in bundling your insurance and saving money on both home and auto insurance, call Policygenius and speak with a licensed representative, who can bundle your policies and cancel your old policy if need be.

Your other option is to simply go with a higher deductible, which is probably the most immediate and easiest way to lower your rates. Just be mindful that a higher deductible means more out-of-pocket expenses if something bad happens.

What’s the average premium in each state?

Homeowners insurance premiums differ from state to state for a number of reasons. If a state has a lot of big cities and densely populated areas, premiums may be higher, as home values are generally higher. States in areas with a higher incidence of natural disasters also generally have higher premiums than states that don’t. The average annual homeowners insurance premiums in 2015 were around $1,100 according to the Insurance Information Institute (III).

StateAverage premiumStateAverage premium
California$986New Hampshire$941
Colorado$1,383New Jersey$1,149
Connecticut$1,411New Mexico$982
Delaware$780New York$1,287
District Of Columbia$1,196North Carolina$1,075
Florida$1,993North Dakota$1,200
Indiana$983Rhode Island$1,446
Iowa$919South Carolina$1,284
Kansas$1,531South Dakota$1,096
Minnesota$1,323West Virginia$907

How to pay homeowners insurance premiums

When you take out a mortgage on a home and your down payment is less than 20% of the homes sale price, your lender may require that you escrow your property taxes and home insurance premiums with your mortgage payments. That means that every month when you make a mortgage payment, a portion goes into your escrow account to pay for insurance and taxes.

You may also have the option of paying for homeowners insurance directly without an escrow account. Maybe your mortgage company didn’t require you to open an escrow account, or maybe you dropped your escrow account because you noticed your lender was routinely misprojecting insurance and taxes and overcharging you. If you do pay your premiums directly, you can typically pay the following ways:

  • Automatic charge to your debit or credit card
  • One-time charge to your debit or credit card
  • Bank account withdrawal
  • Mailing a check
  • At your carrier’s local office

Most insurers will give you the option of paying your premiums month-to-month, albeit at an inflated price. Paying your premiums for the year in full usually gets you a solid discount.

What happens if you don’t pay your premiums?

If you don’t pay your premiums, your insurance company is required to give you and your lender a grace period of 30 days before your policy is cancelled and you lose coverage. If that happens, you’ll have what is referred to as a lapse in coverage.

If you can’t afford insurance or you have a busy claims history and can’t find a company that will insure you, you may be eligible to purchase a Fair Access to Insurance Requirements or FAIR plan to avoid a coverage lapse. FAIR plans are policies that are offered to high-risk applicants who can’t find insurance anywhere else. These plans also cost a ton more than private plans, so this should truly be a last-resort option.

Since homeowners insurance is required by lenders and they’re an additional insured on your policy, they’ll also receive a cancellation notice if you don’t pay your premiums. If you don’t act fast enough, your mortgage company may buy insurance for you. Also known as lender-placed, creditor-placed, and forced-placed insurance, these policies are placed on homes where coverage is soon to lapse or homes that don’t have adequate enough coverage. Similar to FAIR plans, lender-placed insurance is generally more expensive than the insurance you had before, and should be avoided.